Nick Cashmore wrote an interesting report on the cement sector. Indonesian cement producers are in a sweet spot. Earnings, margins and operational performance continue to improve and balancer sheet is strong. Longer term, cement will be a structurally tight market for most of this decade and the strategic case to remain OWT is still extremely compelling.
Tight supply-demand situation.
DEMAND. As the chart below illustrates, cement growth has averaged 1.5x GDP growth for the past decade. Based on the 10-year average, domestic cement demand has thus grown by a CAGR of 7.4%. This would imply 58m tonnes of domestic demand by 2015, 52% more than in 2009.
SUPPLY. By comparison, we estimate that total production capacity will rise from an existing 47m tonnes today to 59m tonnes by 2015, based around current existing expansion plans of firms. Even with current expansion plans all firms will be operating at full capacity by 2015.Indonesia is likely to become a net importer market.
With limited capacity growth until 2012, our preference is for Indocement (INTP IJ) and Holcim Indonesia (CIMB IJ) - pls see the charts below. Both stocks remain strong conviction recommendations. Revenue for Semen Gresik (SMGR IJ) was flat YoY, a function of the company operating at full capacity.
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