Semen Gresik, New plant nearly completed, Danareksa

Counting down
The new Tuban IV production facility is expected to commence trial operation in March 2012.
The project has been slightly delayed from December 2011, but with capex slightly below budget.
In the first two months, the new plant is expected to run at a 50-60% utilization rate and then
to gradually increase to 80-85% in May 2012 and the following months. This will increase Semen
Gresik’s production by 1.3-1.4 mn tonnes. In the first year, the new plant can be expected to run
at an average 70% utilization rate. The Tonasa plant, meanwhile, is being delayed to July 2012
with the power plant to be completed in October 2012. The capex for Tonasa will increase slightly
due to this delay from IDC, translating to Rp20-40bn. All in all, we expect additional capacity of
about 2.1mn tonnes in FY12 from these two new plants.


Pressure from subsidized fuel hikes
With the current government plans to hike subsidized fuel prices by 33%, all cement producers,
including Semen Gresik, will feel the impact as around 14-15% of total sales are related to logistics
costs. A 33% increase in the subsidized fuel price would need to be compensated by a 4.5% price
increase in order to maintain margins. This would translate into a modest increase of Rp1,800
per bag against the selling price of Rp50-55k per bag (20kg).

Also pressure from electricity rate hikes
Semen Gresik currently pays electricity rates of Rp605 per kWh, or significantly lower than PLN’s
production cost for electricity of Rp1,200 per kWh in 9M11. PLN has been assigned with the task
of reducing the production cost to slightly below Rp1,000 per kWh in 2012. Given the fact that
Semen Gresik’s electricity rates are still subsidized, we think the electricity rates for industry will
be subject to an increase of 10%. Electricity is about 11% of the total COGS or about 6.2% of total
sales. As such, Semen Gresik will need to raise selling prices by 0.6% to maintain its margins if
electricity rates are hiked by 10%.

The industry environment may be challenging
We believe that cement demand growth peaked in 2011. We estimate that cement demand
growth could soften to 11% in FY12 and fall to single digits of 5-6% in FY13. By then the industry
will have additional capacity from Semen Gresik of 2 x 2.5mn tonnes and from Holcim Indonesia
of 1.7mn tonnes. With good margins, potential competition will also come from overseas. It has
been reported that Siam Cement has acquired Boral Indonesia, Keramik Indonesia Asosiasi and
Kokoh Inti Areba, all of which are building materials companies. Moreover, Siam Cement plans
to build a cement plant in West Java.

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