BNPP Indocement (INTP IJ) - Growth story intact - BUY with TP IDR19,600 (20% upside)

We maintain our BUY call on Indocement with TP IDR19,600 as we remain believe that Indocement would be the main beneficiaries of stronger cement demand as shown by its market share expansion this year.

*Domestic cement demand in Indonesia remains strong in July 2010, up 10%m-m (6.5% y-y) to 3.7m, close to the record high volume of 3.82m in Dec 2009. In 7M10, cumulative domestic cement sales up 10.7% y-y and is on track to meet our target 9% growth this year. Cement demand may soften in August/September on the fasting month period and Hari Raya holidays, before picking up in 4Q on more government project realization.

*Demand outside Java continues to be the main growth driver with Kalimantan and Sumatra booked 22% and 11% y-y growth respectively. Demand in Sulawesi has also rebounded in July, up 20% m-m after 3 consecutive months of negative growth.

*Helped by its excess capacity, Indocement’s market share expanded the most this year, adding 1.2% market share vs Holcim’s 0.9%. On the other hand, Semen Gresik market share dropped 2.8% on capacity constraint. Trading at our 2010E P/E of 16.2x, Indocement is still at par with its four-year historical mean, which we believe is unfair given its improved ROE of 30% (2010-11E) vs 19% in the past four years. Out TP of IDR19,600 still offers 20% upside, and e see any correction on the share price as an opportunity to enter.