We have been asked why cement companies here make so much money? Indonesia is spread over 17,000 islands of which is 13,000 is inhabited. Imagine trying to distribute goods over this vast area where infrastructure is mostly primitive. Whoever that has established distribution network will have a huge advantage as the barriers to replicate network is very high.
The big three players here control 90%+ market share and each operate in their own region. With cement consumption still one of the lowest in the region, the secular growth story is still very much intact. However, in the short term, cost has been going up (mainly electricity) and new capacity coming online, margins might under a little pressure.
In Nicks piece today, he examined the 1H results on a per tonne basis.
Indocement is generating US$27 net profit on every tonne
Semen Gresik generates US$21 net income per tonne
Holcim Indonesia currently generates only US$13 per
Indocement is the lowest cost and most profitable operator. INTP and especially Holcim offer the most operating leverage until 2012.
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