Cement story, CLSA

Cement prices have started to gradually rise from 2Q11 until the
year end with a 5% weighted average increase. However, cement
price movement has been mixed in the first two months of 2012
with Kalimantan and Bali showing a strengthening trend (>15%)
but other islands showing weakening trend. The overall price
adjustment in eight cities under our watch is around +3.3%.
Strong demand from infrastructure projects in Kalimantan coupled
with bad weather and heavy congestion at ports has enabled
retailers to increase prices.


Talk, walk and feel the ground
 Cement prices in eight big cities in five major islands in Indonesia
show mixed movements with Kalimantan booking the highest rise
of 17% (Feb 12 vs Dec 11) followed by Bali at 14%. However, the
overall price increase in the eight cities was 3.3%.
 Our channel check revealed that retailers often increased prices
ahead of producers, thus retail prices we observed may not have
necessarily reflected producers’ decisions to increase prices.
 Cement producers don’t have any power to control prices at
the retailer level, mostly because transportation costs are borne
by distributors/retailers directly. The news that the government was
about to increase prices of subsidized fuel by 33% in April was one
of the drivers for price increases.
 Indocement (INTP IJ) has so far increased prices in their homeareas
namely some parts of Java and Sumatra by 1.5% to 2%.
They expect to increase prices by 5% for this year.

Kalimantan’s new road to boost cement consumption
 We visited Wijaya Karya’s (WIKA IJ) projects in East Kalimantan’s
Balikpapan including the freeway and Sepinggan airport extension.
 Prices of cement rose at least 17% since Dec 2011 in Samarinda
due to heavy congestion in the ports coupled with bad weather.
WIKA’s ready mix supplier was forced to use jumbo-bagged cement
or even the 50kg bagged cement to meet demand.
 Although WIKA’s projects do not consume so much cement, we
expect the multiplier effect from the on-going and potential
infrastructure projects will help spur residential and industrial
developments.

Best proxies and construction booms
 As Sarina said in Indonesian Cement (Cementing the future), the
sector is one of the best proxies to Indonesia’s consumption boom.
The land acquisition law, government’s infrastructure
developments, and lower cost of capital are among the major
drivers of the construction boom.
 Despite the potential margin pressure due to rising costs, we still
like cement producers Indocement (INTP IJ - Rp14,250.00 - BUY)
and Holcim Indo (SMCB IJ - Rp2,475 - BUY). We also think
construction companies such as Wijaya Karya (WIKA IJ - Rp830 -
N-R), Adhi Karya (ADHI IJ - Rp710 - N-R) and Pembangunan PP
(PTPP IJ - Rp680 - N-R) will benefit from the construction boom.

Download file : The Komodo Cement