Cement issuers run slowly

November 18, 2016, 10.53 AM  | Reporter: Narita Indrastiti
Cement issuers run slowly


JAKARTA. Some challenges still overwhelm cement sector. Referring to the data of Indonesia Cement Association, the volume of cement sales in October 2016 shrank by 7.9% on year-on-year (YoY) basis to 6.06 million tons. Meanwhile, cement sales during January to October 2016 reached 50.76 million tons, a slight increase of 1.6% compared to the same period last year.

The cement sales in Java even dropped by 12% (yoy). The demand for cement in Java consists of 54.6% of total domestic sales during the 10 months of this year.

Analyst at KDB Daewoo Securities Indonesia Mimi Halimin said that the decline in cement sales was driven by some negative sentiments, such as low domestic demand and oversupply.

Director of Investa Saran Mandiri Hans Kwee estimated that tha reduction in the cement sector comes as a slowdown in the real estate business during the last two years.

"The property sector is still slowing and there is excess in supply due to many new competitors in the industry, resulting in a price war," Hans told KONTAN, Thursday (17/11).

Mimi also said the absorption of government budget is still slow. This reflects on the the economic growth in the third quarter.

In addition, the recent rainy weather is less supportive for cement distribution. He suspected that the heavy rains potentially cause flooding in several areas in West Java, such as Karawang and Bandung. This could hamper the distribution of cement in the regions. "The market volatility after the US presidential election also brings another uncertainty," said Mimi in a research report.

Until October 2016, three of the four cement companies listed on the Indonesia Stock Exchange (IDX) still experienced a decline in sales. PT Semen Indonesia Tbk (SMGR) recorded domestic sales volume of 2.5 million ton in October 2016. The number has dropped by 6.1% (yoy), but rose 5.2% compared to the previous month. Cumulatively, in the recent 10 months, SMGR sales volume reached 21.2 million tons a slight increase of 1.3% (yoy).

Prospects for next year

Meanwhile, PT Indocement Tunggal Tbk (INTP) achieved sales of 1.5 million tonnes in October, down by 12.7% (yoy). From January to October, INTP sales dropped by 3.6% to 13.2 million ton.

PT Holcim Indonesia Tbk (SMCB) recorded the sharpest decline in sales. SMCB sales volume during October slipped by 28% (yoy) to 675,554 ton in the domestic market. Furthermore, the cumulative sales in the 10 months of this year fell by 10.6% (yoy) to 6.2 million ton.

However, PT Semen Balfour Tbk (SMBR) has better sales record than its competitors. SMBR posted sales of 177,079 ton in October. This figure is up by 4.8% (yoy). SMBR sales from January to October this year increased by 3.6% (yoy) to 1.3 million ton.

Although this year's cement industry grows slowly, Hans predicted that the cement industry in 2017 will be driven by the recovery of the national property industry. "Property can be wiggling in the next year, followed byt the prospect of lower interest rates," he added.

According to Hans, the market leaders, such as SMGR and INTP have chances to grow better in the next year. SMGR Management predicts that cement sales in the next will grow by 4% compared with this year. However, the number is better than 1.5% this year's in the last year.

Hans is also still optimistic that the government would seek to accelerate the absorption of infrastructure spending. He still recommends buy for SMGR and INTP with a target price of this year ranging from Rp 9,000-Rp 16,000 per a share.

While in the next year, SMGR and INTP shares prices are targeted to stand at Rp 11,400 per share and Rp 18,800 per share, respectively.

However, Mimi assessed that the cement sector still lacks positive catalyst so that he recommends underweight for this sector.

(Muhammad Farid/Translator)

Editor: Barratut Taqiyyah Rafie

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