CIMB Cement

Sector Note - More than it is cracked up to be?

We maintain our OVERWEIGHT stance on Indonesia's cement sector as we still see a number of potential earnings catalysts that could justify a further re-rating: 1) steady domestic price, 2) pick-up in exports, 3) more than 7% domestic cement consumption growth in FY10 accompanied by more than 5% price growth, and 4) lower costs in 2H09. We now expect a slight easing of domestic prices in 2H09 (6% decline previously), 6% price growth next year instead of stagnant prices and higher export volumes. Our FY09-11 EPS forecasts are raised by 3-15%. Indocement is our top pick (target price raised 19% to Rp8,350) in view of more earnings catalysts and dividend upside. We upgrade Holcim to OUTPERFORM from Trading Buy while upping our target price to Rp1,100. Semen Gresik is cut to UNDERPERFORM from Outperform as we lower its target price by 13.5% to Rp4,150.