Indopremier Cement Industry

Domestic and export sales in April raised by 6.8% MoM and 7.7% MoM
Indonesia cement sales in April 2009, either for domestic or export, managed to book higher volume MoM. Domestic sales booked 6.8% hike in April 2009 reaching 2.85 million tones, higher than March 2009 sales (+1.2% MoM). Export sales in the same period escalated 7.7% MoM attaining to 306k tones, lower than March growth of 24.9% MoM.

Domestic cement sales dropped 5.8% YoY in 1Q09
The falling trend of cement sales has started in the first quarter this year due to global crisis. Based on data from Indonesia Cement Association (ICA), cement domestic volume in 1Q09 has fallen by 5.8% YoY and 12.9% QoQ reaching 39.2 million tones.

Export sales also decreased by 37.3% YoYin 1Q09
In line with domestic market trend, export volume also decreased by 37.3% YoY and 43.1% QoQ, accounted to 711k tones in 1Q09 compared to 1Q08 reaching 1.1 million tones.

SMGR still controlled national market share
In the first three months this year, SMGR still dominated domestic cement industry by having market share at 45.7%, improved 180 bps compared to 43.9% market share in the same period last year. Second place was taken by INTP with 29.8% market share which improved by 80 bps but remain below 30% compared to 1Q08-3Q08 period while SMCB only booked 12.7% market share.

Cement sector is projected to slowdown in 2009
This year, cement sector is projected to slowdown and would expand in range 0% YoY - 3% YoY, attaining to 38.01 million tones – 39.3 million tones. We view that Government stimulus in infrastructure sector worth of Rp 12.2 trillion would be a catalyst to prop up cement domestic purchasing power.

Focused on cost efficiency and ASP
The cope with the slow down this year, cement producers focus on two strategies, i.e., cost efficiency and maintaining average selling price (ASP), so that profitability level remains sound while sales volume declines. It has been reflected in the 1Q09 financial performance of cement players in the IDX. INTP during this quarter managed to book higher profitability compared to competitors. Higher ASP hike and cost efficiency, through energy diversification has resulted in 1.5% YoY COGS decline (COGS/ton was at Rp 451k/ton, the lowest among its peers). The gross margin and operating margin jumped to 46% and 34% respectively.

Healthy balance sheet and lower gearing ratio were an added value amidst crisis
This year, we valued more cement producer with healthy balance sheet, lower gearing ratio and have net cash position, which would facilitate funding for expansion.

Neutral Recommendation with SMGR as our Top Pick
We put our Neutral recommendation for cement sector, on the back of remain weaker cement demand this year, delay in infrastructure project such as due to prolong rainy season and festive season, rising energy price and higher raw materials price.