Credis Suisse CEMENT: In line April domestic volume (+16% YTD, +12% YoY) - Top-Buy SMGR

Given recent negative sentiment and news flow from domestic politics and global markets, on valuation ground we are recommending Buy SMGR and Hold/Take Profit INTP & SMCB.

· Arief Wana (Daily): Indonesia’s April cement sales volumes stayed strong, posting a 12% YoY increase (despite a 6% MoM decline) to 3.2 m tonnes. This resulted in YTD figures rising by 16%, in line with our forecast (31% of our 2010 forecast).
· Holcim Indonesia and Indocement appeared to have taken advantage of Semen Gresik’s capacity constraints (worsened by the plants’ overhaul this year as well). The more aggressive move by Holcim Indonesia and Indocement could also be a reason for the declining trend in ASPs (retail level) (-3% in the past three months) outside their main Java market. When new players penetrate new markets, ASP tends to decline. We maintain our OVERWEIGHT stance on the sector, and our top pick remains Semen Gresik, given its cheaper valuation and 23% potential upside to our target price.
· Ng Hock Leng (HOLT commentary): Semen Gresik compares well to peers (Indocement and Holcim Indonesia), highest return company among the three. Using a GDP-like asset growth and assuming flat level of CFROI over the next 5 years, this HOLT scenario has a 20% upside for Semen Gresik (Warranted Equity value Rp9,800, in line with Arief Wana’s DCF Rp10,000).