Cementing Growth

Investors are closely monitoring the Indonesian cement industry, with a particular focus on the monthly domestic cement volume and concerns related to cement oversupply and pricing competition.

In this context, Semen Indonesia (SMGR) stands out as a major national cement company well-positioned to take advantage of the opportunities in the market due to its favorable financial conditions.

Recognizing the wide price difference of IDR15k-25k per bag between its main brand and economical brand, SMGR aims to narrow this gap to a more optimal range of IDR8k-12k per bag.

To achieve this, since the beginning of 2023, SMGR has implemented targeted price adjustments, maintaining the average selling price (ASP) of its main brand while increasing the ASP of its economical brand.

Source: Company

This strategy has influenced Tier-2 competitors to also raise their prices, enabling SMGR to boost the sales volume of its main brand.

Anticipating a 2-3% growth in its blended domestic ASP for 2023, SMGR is committed to achieving EBITDA growth of 5-10% yoy by maintaining a market share of over 50% in the local cement market.

Furthermore, the narrowing gap between coal domestic market obligation (DMO) prices and spot prices has provided SMGR with greater flexibility in selecting its coal supply, leading to expected improvements in energy costs in 2H23.

Source: Company, Sucor Sekuritas

In addition to margin improvement, the ongoing infrastructure development, particularly the New Capital City (IKN) project, has also positively impacted the growth of the domestic cement industry.

The IKN project is estimated to contribute to national cement sales of approximately 800k to 1mn tons per year. In addition, with an estimated value of the project’s development being IDR466 tn by 2045, and additional cement demand of 1mn ton per year until 2045 (government project only), SMGR is faced with tremendous potential.

Source: idxchannel

Although cement demand has been weak at the beginning of FY23 due to rainy season and long holidays of Ramadan and Eid Al-Fitr, SMGR expects a recovery in 2H23 as government projects strive to meet completion targets before the 1Q24 election.

Lastly, with SMGR's historical lowest price over the past 10 years standing at IDR5,700/share, we view SMGR having limited downside risk and indeed an appealing time to assess opportunities in the cement industry.

For more comprehensive analysis on SMGR, stay tuned for our analyst, Clara's, report publication.

Wishing everyone a great Idul Adha weekend ahead!

Cheers,

Boris the Broker🐾

SucorSekuritas