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March 25 2015
Holcim Indonesia Tbk
Initiating Coverage
Cementing the Foundation
Buy (initiate)
Target price (IDR)
2,095
TP time range
52 wk
Previous rating
-
Previous TP (IDR)
-
Shares data
Last Price (IDR)
Price date as of
52 wk range (High/Low)
Free float (%)
Outstanding Shares (mn)
Market Cap (IDR bn)
Market Cap (USD mn)
Avg trd volume, 60d (sh. mn)
Foreign ownership
1,525
Mar 24, 2015
3,080 / 1,525
19.4%
7,663
11,686
899
4.1
99.9%
Basic Industry - Building Materials
Cement
Bloomberg
Reuters
SMCB.IJ
SMCB.JK
We initiate our coverage on PT Holcim Indonesia, Tbk (SMCB) with a buy rating
Dec 2015 price target at IDR 2,095. Last year SMCB reported declined EPS by 30
percent due to pressure margin. We views that bad result on last 2 years as the
time for the company to build its foundation, especially when economic cycle
was depressed. We expect favorable macroeconomic and infrastructure acceleration will help EPS to grow from IDR 87 to IDR 123 this year.
Strategic factory location in Java
Company’s cement factory complex in Tuban has been operating since June
2014 with installed capacity at 1.7 million ton per year. By the end of 2015,
Tuban complex capacity will be increased to 3.4 million ton. We look positive
for this achievement as now the company has three strategic location in Western, Central, and Eastern part in Java that will help the company to compete in
Java’s market and start to penetrate more in Eastern Indonesia.
Wide range of product differentiation
After successfully handled brand image problem, resulted from changing the
name from Semen Cibinong to Holcim, now the company is trying to differentiate its product to by offering wide range of cement related product and services. Company efforts is starting to gain popularity as now large-project activities demanding high usage of cement material are looking on simplicity. We
view management innovation in differentiating its products and services will
help its brand image shortage compared to SMGR or INTP.
Raphon Prima | Research Analyst
+62 21 797 6202, ext:214
[email protected]
Lower ASP as it try to attract market
Last year SMCB only raise its ASP for cement domestic market by 4.4 percent
although competitors increase their ASP more than 5 percent as the effect of
the high inflation. The company implemented lower prices in order to attract
market by its innovative products. We views this a main risk of the company
especially if the demand is still weak due to macroeconomic factors.
52wk Share Price Performance
Holcim Indonesia, Tbk | Summary
YTD
Abs Ret.
Rel Ret.
-30.2%
-34.4%
1M
-19.7%
-20.3%
3M
-30.0%
-35.5%
12M
-44.4%
-59.9%
In IDR bn
Revenue
EBITDA
Net Profit
Basic EPS (IDR)
EPS Growth (%)
BVPS (IDR)
DPS (IDR)
Dividend Yield (%)
P/E (x)
P/B (x)
EV/EBITDA (x)
DER (x)
Financial Leverage
ROE
ROA
2012A
9,011
2,610
1,350
176
27.00%
1,099
85
2.9%
16.5x
2.6x
8.9x
0.2x
1.4x
16.9%
11.7%
2013A
9,686
2,448
952
124
-29.49%
1,145
87
3.8%
18.3x
2.0x
8.5x
0.4x
1.6x
11.1%
7.0%
2014A
10,529
1,993
668
87
-29.80%
1,143
41
1.9%
25.1x
1.9x
11.0x
0.6x
1.8x
7.6%
4.2%
2015F
11,627
2,702
945
123
41.34%
1,205
58
2.8%
17.0x
1.7x
8.1x
0.7x
1.9x
10.5%
5.4%
2016F
12,891
2,990
1,046
136
10.69%
1,263
64
3.1%
15.4x
1.7x
7.3x
0.6x
2.0x
11.1%
5.6%
Source: Company Data, Bloomberg, NHKS Research
Please see the last page for rating criteria & important disclaimer
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 11
Initiating Coverage | SMCB
March 25 2015
Investment Thesis
Strategic factory location in Java
After officially opened its new factory in Tuban, SMCB now have three cement
factory complex in strategic location in Java. Narogong in West Java, Cilacap in
Central Java, and Tuban in East Java will help the company to compete in Java,
major cement market in Indonesia. In contrary, its major competitor SMGR and
INTP are only have cement factory complex in one specific region of Java. INTP
owns factory in Western Java only, in Bogor and Cirebon, while SMGR now produces cement in Eastern Java, in Gresik while its Rembang factory is still on
construction progress.
Java Cement Capacity (in million ton)
Consump- Installed Capacity
tion in 2014 SMGR INTP SMCB
Western Java
16.3
18.6 5.6
Central Java
6.3
3.5
Eastern Java
7.3 14.4
1.7
Total
29.9 14.4 18.6 10.8
Region
Source: Companies
By the end of 2015, SMCB capacity in Eastern Java is estimated to be at 3.4 million ton, by additional 1.7 million to from Tuban II factory. Looking on this potential, SMCB will have capacity nearing half of consumption in Eastern Java,
giving challenge to SMGR that previously highly dominating Eastern Java.
Tuban plant will also help Cilacap plant in Central Java, as it can concentrate
now on Central Java region only. With total capacity of 3.5 million or more than
half of consumption, this condition will be a significant advantages for SMCB to
start its domination early, as other competitor is now in progress to build factory in Central Java. SMGR now is on progress in constructing factory Rembang,
while INTP is assessing opportunity to build factory in Pati.
SMCB will have benefit in Central Java region as it use train service to distribute
the product from its factory in Cilacap. Currently the company distribute its
product to six stations. Five stations located in central Java region are
Lempuyangan, Purwosari, Solobalapan, Sragen, Brumbung, while one station
located in Western Java is Cirebon Prujakan. Last year the company distribute
1.1 million ton using train services. This number is increased by 62 percent
compared to 684 thousand ton in 2013 due to new loading/unloading system
using paletizer system.
In addition, SMCB can also focus on its Western Java high competition. With
greater Jakarta located on Western Java now is demanding more on ready mix
concrete, Narogong plant now can focus to capture more from the biggest cement market in Indonesia. In addition, SMCB will has benefit as in April 2015, it
will distribute cement production from Cilacap to Tasikmalaya in West Java.
This railway network in addition with train distribution to Cirebon Prujakan will
help SMCB to support its lower price in high competition.
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 22
Initiating Coverage | SMCB
March 25 2015
We expect SMCB distribution expense to be lowered for the next after it experienced significant increase in 2014. Last year, distribution cost was 7.8 percent
of its revenue. This number was highest compared to its trend from 2010 at
around 6 percent. Looking on strategic factories location in addition increasing
usage of train services on distribution, we hope distribution cost will be back to
around 6.9 percent again.
Distribution cost to revenue ratio | 2010—2016E
Source: Company, NHKS estimate
Wide range of product differentiation
SMCB is differentiating its product by giving added value of cement product.
SMCB is not just selling cement product but also giving services in order to give
easiness for customer using cement for their projects. The services given by
SMCB is in the ready mix product that help not only large scale infrastructure
projects, but also individual residential projects. This differentiation strategy is
help the company to penetrate market that is controlled by brand image of
INTP and SMGR.
Speedcrete
Speedcrete is a service offered by SCMB for road construction. This services
guarantee the customer that it will build or repair road for seven hours only
and the road can be used just in the next 10 hours. This service will be one of
the competitive company’s service as road infrastructure project is on booming
after government is targeting to double its length of toll road.
Minimix
Minimix is a new service offered by SMCB as it can serve individual construction
projects in a small and remote location that can’t be accessed by regular molding truck. Minimix truck has one third size from regular molding truck size, enabling it to move even in an narrow street within densely houses area. This service is SMCB innovation as other cement producer having services in concrete
now is only serving large infrastructure projects. We view that this service will
gain popularity as now individual tend to build or renovate its houses to minimum two store building, demanding for practical concrete.
We view that SMCB is one step ahead in giving additional services for its customer compared to other competitor. SMCB is trying to change cement industry from rigid characteristics to more friendly by giving some special features in
its services or distribution scheme. To handle growing demand for ready mix
concrete, the company is offering franchise opportunity for a small scale enterprise. In addition, SMCB also innovates its payment channel enabling credit
card and debit card payment of major banks such as BCA, Mandiri, and CIMB
Niaga.
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 33
Initiating Coverage | SMCB
March 25 2015
Increasing revenue contribution from concrete
As increasing demand on ready mix concrete (RMC) and SMCB is now developing concrete services, its revenue composition is gradually changed. Ready mix
concrete (RMC) revenue contribution is going higher. In 2010 RMC revenue was
only at 13.9 percent. We expect RMC revenue at IDR 2.04 trillion or contributing 17.5 percent, and in 2016 will contribute 18.4 percent at IDR 2.38 trillion.
Ready mix revenue | 2010—2016E
Source: Company, NHKS estimate
Investment Risk
Lower ASP as it try to attract market
Looking on bad result in the last years, especially as its margin was pressured,
we see that SMCB was not balancing higher cost with significant ASP increase.
It seems that SMCB is trying to penetrate the market using competitive selling
prices to gain popularity over its new innovative products. Last year, SMCB was
only increased its ASP for domestic cement product by 4.4 percent only to IDR
949 thousand per ton. Previously the company’s ASP growth was at 5.2 percent. We expect company’s ASP growth will be around 5 percent again in the
next two years, accommodating potential higher cost due to depreciating IDR.
However, the obstacle comes from government intervention over pricing on
cement product from state-owned cement producer. The government will determine retail price of cement bag product occasionally as it control fuel price
of RON88 and gasoline.
Average selling price | 2010—2016E
Source: Company, NHKS estimate
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 44
Initiating Coverage | SMCB
March 25 2015
Valuation
Our Dec 2015 price target at IDR 2,095 is based on blended average of residual
income model, PE multiple, and EV/EBITDA multiple.
Residual income model
Our residual income model results a fair value of IDR 2,080. We forecast residual income model for the next five years using following assumptions: ROE
12.6%, dividend payout ratio 47%, cost of equity 10.1%. We set terminal value
with assumptions P/B target at 1.95x.
Residual Income Model
Beginning BVPS
EPS
Dividend per share
Ending BVPS
Equity charge per share
Residual Income
PV of Residual Income
Source: NHKS estimate
2015E
2016E
2017E
2018E
2019E
1,143
123
58
1,208
115
8
7
1,208
136
64
1,280
122
14
12
1,280
161
76
1,365
129
32
24
1,365
172
81
1,456
138
34
23
1,456
184
87
1,553
147
37
23
Terminal value
Market value on the end of 2019
PV of terminal RI value in 2019
PV of terminal RI value
3,028
1,373
848
P/E multiple
Our fair value based on P/E multiple is at IDR 2,059 This fair value is derived
from P/E 17.43x, a level of average 5 years P/E minus 0.5 standard deviation.
Ideal entry point based on P/E multiple is at IDR 1,391 or at P/E 11.28x, a level
of average 5 years P/E minus 1.5 standard deviation.
EV/EBITDA multiple
Our fair value based on EV/EBITDA multiple is at IDR 2,148. This fair value is
derived from EV/EBITDA 7.95x, a level of average 5 years P/E minus 0.5 standard deviation. Ideal entry point based on EV/EBITDA multiple is at IDR 1,238 or
at EV/EBITDA 5.62x, a level of average 5 years EV/EBITDA minus 1.5 standard
deviation.
P/E multiple
EV/EBITDA multiple
Source: Company, NHKS estimate
Source: Company, NHKS estimate
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 55
Initiating Coverage | SMCB
March 25 2015
Company Overview
Brief History
PT Holcim Indonesia, Tbk is a cement based building materials in Indonesia. The company was founded on 1971 under the name of PT Semen Cibinong. The company was
listed on Jakarta Stock Exchange in 1977. In 2001, Holcim, Ltd one of biggest cement
producer in the world became the majority shareholder. The company name was
changed in 2006 into PT Holcim Indonesia, Tbk
Company Facility
Holcim Indonesia operates three cement factory complex in three places, Narogong
(West Java), Cilacap (Central Java), and Tuban ( East Java), with total installed capacity at
10.8 million to per year. The last plant in Tuban, Tuban I was officially started its production in June 2014 with capacity of 1.7 million ton per year. In addition the company now
is developing Tuban II plant, having same capacity with Tuban I and is expected to be
operated in 2015. Hence, by the end of 2015 the installed capacity is expected at 12.5
million ton.
Production Capacity
Plant
Narogong
Cilacap
Tuban I
Tuban II*
Total
Capacity (mn ton)
5.6
3.5
1.7
1.7
12.5
Source: Company | *to be completed in 2015
Company’s facility location
Source: Company
To enhance its distribution network especially for Java market, the company is
also has additional facility such as silo, grinding plant and batching plant as well
as sales units. Outside Java, the company only has four batching plants in Dumai, Riau, and Batam in Sumatera, and Pontianak in Kalimantan. The company
also has silo, batching plants, and retailer in Bali in order to enhance its network toward Eastern Indonesia.
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 66
Initiating Coverage | SMCB
March 25 2015
Organizational Structure
SMCB is a cement producer under the group of Holcim Ltd, one of biggest cement producer in the world. SMCB owns six subsidiaries having cement related
business.
Holcim Ltd
100.00%
Holderfin BV
80.65%
PT Holcim Indonesia, Tbk
PT Holcim Beton
Ready mix concrete and aggregates quarry
Cibinong International Finance Company BV
Finance company
Cibinong International Finance Limited
Finance company
PT Readymix Concrete Indonesia
Ready mix concrete and aggregates quarry
PT Pendawa Lestari Perkasa
Aggregates quarry license
Holcim (Malaysia) Sdn. Bhd
Cement producer
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Source: Company
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 77
Initiating Coverage | SMCB
March 25 2015
Financial Statement Analysis
Revenue Analysis
In 2014, SMCB revenue was at IDR 10.529 trillion, increased by 8.7 percent
from previous at IDR 9.686 trillion. Company maintained its revenue composition which about 83 percent of its revenue from cement business revenue. For
the next two years we estimate company’s revenue to grow moderately by
10.4 and 10.9 percent backed by favorable economic cycle.
Revenue (in IDR billion) and Growth | 2010 - 2016E
Revenue Composition | 2010 - 2016E
FY 2010
FY 2011
FY 2012
FY 2013
Cement
85.4%
84.5%
85.5%
82.7%
82.7%
81.8%
81.0%
RMC
13.9%
14.7%
13.8%
16.7%
16.7%
17.5%
18.4%
0.8%
0.8%
0.7%
0.5%
0.6%
0.7%
0.6%
Aggregate
FY 2014 FY 2015E FY 2016 E
Source: Company, NHKS estimate
Source: Company, NHKS estimate
Cement Revenue
SMCB reported its domestic sales volume in 2014 at 9.67 million ton, increased
by 3.8 percent, after it was experiencing decline by -0.4 percent previous year.
For the next two years we estimate cement sales volume to increase moderately by 4.0 percent and 4.2 percent.
Average selling price for domestic cement sales in 2014 at IDR 949 thousand
per ton, increased by 4.4 percent. We estimate 5.1 percent and 5.2 percent
increase on ASP.
Company’s cement sales domestic revenue was at IDR 8.71 trillion, increased
by 8.7 percent. In 2013 revenue was at IDR 8.02 trillion with 4.0 percent increase. We estimate company’s revenue to grow by 9.4 and 9.7 percent for
the next two years.
Cement sales volume (in thousand ton) | 2010 - 2016E
Cement revenue and ASP | 2010 - 2016E
Source: Company, NHKS estimate
Source: Company, NHKS estimate
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 88
Initiating Coverage | SMCB
March 25 2015
Revenue seasonality
By history, SMCB is experiencing revenue on fourth quarter. Around 29 percent
of annual revenue is contributed by fourth quarter revenue. In contrary, first
quarter is contributing small portion to annual revenue. First quarter is only
contributing about 22 percent. Meanwhile second and third quarter is contributing 24 to 26 percent of annual revenue.
Quarterly revenue| 2012 - 2015E
Source: Company, NHKS estimate
Margin Analysis
Company’s gross profit margin was dropped significantly in 2014 to 28.7 percent from previous at 34.6 percent. While company’s revenue increased only 9
percent, COGS increased by 19 percent. Largest contribution of COGS, raw material and manufacturing cost increased by 21 percent from IDR 5.3 trillion to
IDR 6.4 trillion. In addition, salaries and wages related to manufacturing process increased by 22 percent from IDR 371 billion to IDR 455 billion.
Operating profit margin dropped to 12.3 percent last year from 19.1 percent.
G&A expenses was increased significantly by 50 percent from IDR 397 billion to
IDR 596 billion. Meanwhile, selling expense increased by 20 percent from IDR
926 billion to IDR 1.1 trillion.
Realizing dropped on gross profit and operating profit margin, net profit margin
dropped to 6.3 percent from 9.8 percent. We expect for the next two years
company’s net profit can be around 8 percent.
Margin ratio| 2011 - 2016E
Source: Company, NHKS estimate
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 99
Initiating Coverage | SMCB
March 25 2015
Industry Analysis
Highly Correlated with Economic Cycle
Cement consumption in Indonesia has grown steadily from 30 million ton in 2004 to
59.9 million to in 2014. Throughout this period, cement consumption growth was moving according to economic cycle in Indonesia. Cement as basic material for property and
construction project will experience higher growth when economic cycle is peak while
slower growth when economic cycle is on contraction.
Cement Consumption Growth vs GDP Yoy | 2008 - 2014
Cement Consumption | 2004—2014
Source: Bloomberg
Source: Bloomberg
Cement Growth vs Inflation Yoy | 2010 - 2014
Cement Growth vs BI rate | 2008 - 2014
Source: Bloomberg
Source: Bloomberg
Cement consumption growth every year is moving significantly altogether with
GDP growth. In 2009, when GDP contracted by 4.55 percent, cement growth
was only at 0.7 percent. In contrary, in 2011 when GDP accelerated by 6.46
percent, cement growth was at 17.6 percent.
Cement consumption growth is negatively correlated with inflation rate. When
inflation rate at low level in 2011 – 2012, cement consumption growth was at
double digit. In contrary, when inflation rate increased in 2013 and 2014, cement consumption growth decline significantly to 5.5 and 3.3 percent respectively.
Cement consumption growth also negatively correlated with BI rate as property
industry, significant buyer of cement, depends on mortgage rate. In 2011—
2012, Bank Indonesia applied low rate, resulting higher growth on cement consumption. After Bank Indonesia significantly increased BI rate above 7 percent,
cement consumption growth dropped.
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 1010
Initiating Coverage | SMCB
March 25 2015
Cement Consumption Forecast
After experiencing contraction on 2014, economic life cycle now is expected to
move toward expansion. Forecast on GDP and inflation rate show optimism
over next three year. GDP growth is projected to be about 6 percent in 2017.
This higher growth is actually a conservative forecast as government usually
stated its target about 7 percent.
In addition, inflation is projected around 5.5 percent for the next three years,
realizing new government policy not to give gasoline subsidy over RON 88
product. For 2013 and 2014, rising RON 88 was a main source of higher inflation.
Forecast of GDP growth | 2015 - 2016
Forecast of Inflation | 2015 - 2016
6.50%
16.5%
14.5%
6.00%
12.5%
10.5%
5.50%
8.5%
6.5%
5.00%
4.5%
4.50%
2.5%
2010
2011
2012
2013
2014
2015F 2016F 2017F
GDP Forecast (IMF)
GDP Forecast (Bloomberg Estimate)
Cement Consumption Growth (RHS)
Source: Bloomberg, NHKS estimate
Source: Bloomberg, NHKS estimate
We use multiple linier model to forecast cement consumption growth, by using
two variables, GDP growth and inflation rate, influencing cement consumption
growth. Using the method we find estimation for intercept and coefficients for
each variables. Our model stated that variability on cement consumption
growth is explained 95 percent of GDP growth and inflation rate variable.
By using GDP growth forecast at 5.44 percent and inflation rate at 6.15 percent
for this year, our model suggests cement consumption growth forecast at 8.9
percent. This reasonable growth is higher than 3.3 percent growth in 2014, and
is likely marking rebound on cement industry. In addition, for the next 2016
and 2017, cement growth forecast is at 11.4 and 11.5 percent respectively.
Multiple regression output
Variable
Intercept
GDP Growth
Inflation Rate
Cement Consumption Growth Forecast
Coefficients
0.16
1.30
(2.37)
Cement Consumption Growth
GDP growth
Inflation rate
3.3%
8.9%
11.4%
11.5%
5.02%
5.44%
5.80%
6.08%
8.36%
6.15%
5.30%
5.39%
2014
2015F
2016F
2017F
Based on above model, we also make sensitivity analysis according to any
change in GDP growth and inflation rate. Our sensitivity model suggests that
every 0.5 percent increase (decrease) in GDP growth is likely to give increasing
(decreasing) impact of 0.65 percent to cement consumption growth. In addition, every 0.5 percent increase (decrease) in inflation rate will give decreasing
(increasing) impact of 1.19 percent to cement consumption growth.
Sensitivity of Cement Consumption Growth
Sensitivity to
0.5 % change in GDP growth
0.5 % change in Inflation rate
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Cement Demand Growth
+0.65%
-1.19%
Page 1111
Initiating Coverage | SMCB
March 25 2015
Geographical Composition
Cement consumption in Indonesia is highly concentrated on Java island. As
most populated density where capital of Indonesia is located, demand from
this island is dominated more than half of country’s consumption. On 2008 to
2010, difference between Java and non-Java was only about 3 to 4.5 million
ton. However this difference is going wider as in 2014, the difference is at
about 7.5 million ton.
Java vs Non Java consumption (in million ton)| 2010 - 2014
Market share per region | 2014
Source: Indonesia Cement Association
Source: Indonesia Cement Association
Looking on factory location and capacity, it is noted that cement in Indonesia is
majority produced in Java island. Looking on Java consumption at only 33.7
million ton last year, cement market in Java is on oversupply, indicating high
level of competition. Some of the output from Java is distributed to other island resulting higher cement prices due to higher distribution expense.
Installed Capacity per region (in million ton) | 2014
Factory location
Source: Indonesia Cement Association
Source: Indonesia Cement Association
Installed Capacity vs Consumption (in million ton) | 2014
Installed Capacity
Consumption
Java
55.3
33.73
Sumatera
10.2
12.49
Kalimantan
2.6
4.55
Sulawesi
2.9
4.53
Nusa Tenggara
0.5
3.34
Papua
1.3
TOTAL
71.5
59.9
Surplus (Deficit)
21.57
(2.29)
(1.95)
(1.63)
(2.84)
(1.27)
11.59
Source: Indonesia Cement Association
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 1212
Initiating Coverage | SMCB
March 25 2015
Competition
Market participant in Indonesia cement industry is only consisted seven companies. Previously there were nine companies, but there were consolidation between three state-owned companies, Semen Padang, Semen Gresik, and Semen Tonasa, forming a company named PT Semen Indonesia, Tbk, a market
leader in the industry. About 88 percent of total cement market share is dominating by three top companies, Semen Indonesia, Indocement, and Holcim Indonesia.
Market share per company | 2014
Installed Capacity per company (in million ton)| 2014
Source: Indonesia Cement Association
Source: Indonesia Cement Association
Competition in cement industry is marked by brand equity war on each producer. For example, Semen Indonesia is experiencing brand equity on Western
Sumatera (through Semen Padang), eastern Java (through Semen Gresik), and
some part of Sulawesi (through Semen Tonasa). In addition, Indocement and
Holcim are dominating market in Western Java for its strong brand equity in
the market. Having said of this, it is hard for any competitor to gain significant
market share on specific region, even though it offers competitive selling price.
Market share on specific region | 2014
Java
Sumatera
Semen Indonesia
40.5%
43.0%
Indocement
38.6%
14.2%
Holcim Indonesia
18.4%
14.8%
Bosowa
2.3%
3.2%
Lafarge
14.9%
Baturaja
9.9%
Kupang
0.1%
0.0%
Source: Indonesia Cement Association
Kalimantan
50.5%
29.5%
11.0%
9.1%
-
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Sulawesi
63.4%
12.8%
0.8%
23.0%
-
Nusa Tenggara
39.1%
33.3%
5.2%
17.3%
4.9%
Papua
57.3%
20.3%
0.7%
21.5%
-
Page 1313
Initiating Coverage | SMCB
March 25 2015
Summary of Indonesia Cement Industry Characteristics
Characteristics
Explanation
Major Firms
PT Semen Indonesia, Tbk; PT Indocement Tunggal Prakarsa, Tbk; PT Holcim Indonesia, Tbk
Barriers to entry and success
High. Intensive Capital Barriers. Consumer has strong brand loyalty
Industry Concentration
Highly concentrated by companies and region. More than half of the industry in
Java
Influence of industry capacity on
pricing
None. Pricing is determined by strength of brand images
Industry Stability
Very stable. Market share changes slowly
Life Cycle
Mature. Growth is driven by country’s economic cycle
Competition
Low. Consumer decision strongly influenced by brand awareness not by price
Demographic Influence
High. Growing middle age and middle income class drive consumption
Government Influence
High. Government massive infrastructure project boosted demand
Social Influence
Not Applicable. Cement is non-substituted product needed on infrastructure project
Technological Influence
Moderate. Technology reduce cost but needs time to significantly have impact
Business Cycle Sensitivity
Very cyclical. Growth is depending on economic cycle.
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 1414
Initiating Coverage | SMCB
March 25 2015
Summary of Financials
(Year-end 31 Dec)
Operation Summary
Dec-13
Dec-14
Dec-15E
Dec-16E
Current Share Price (Mar 24, 2015):
IDR/Share
1,525
Domestic Sales volume (thousand of ton)
9,316
9,670
10,058
10,484
Target Price:
IDR/Share
2,095
Export Sales volume (thousand of ton)
182
189
196
205
Bloomberg: SMCB:IJ
Reuters: SMCB.JK
RMC Sales volume (thousand of tones)
4,646
4,871
5,129
5,416
Analyst: Raphon Prima
Rating: BUY (Initiate)
Installed Capacity (mn of tones)
9.1
10.8
12.5
12.5
Income Statement (IDR bn)
Dec-13
Dec-14
Dec-15E
Dec-16E
Sales growth (y/y)
Net sales
9,686
10,529
11,627
12,891
Cement sales
Cost of goods sold
(6,331)
(7,503)
(7,820)
(8,679)
RMC sales
Gross profit
3,355
Total revenue
Selling expenses
G & A expenses
(926)
(397)
3,026
3,807
4,212
(1,113)
(1,117)
(1,240)
(596)
(787)
(872)
4.0%
8.7%
9.2%
9.7%
29.9%
8.2%
16.1%
16.7%
7.5%
8.7%
10.4%
10.9%
Key assumptions
EBITDA
2,448
1,993
2,702
2,990
Domestic ASP (IDR '000/tones)
909
949
998
1050
EBIT
1,849
1,292
1,855
2,050
ASP growth
5.2%
4.4%
5.1%
5.2%
Domestic sales volume growth
-0.4%
3.8%
4.0%
4.2%
GDP growth
5.8%
5.0%
5.3%
5.6%
Interest - net
EBT
Taxes
Minority interest
(512)
1,337
(384)
(0)
(285)
1,007
(339)
(1)
(473)
1,382
(436)
(525)
1,525
(479)
(1)
(1)
Key ratios
Net income
952
668
945
1,046
Profitability ratios
Basic EPS (IDR/Share)
124
87
123
136
Net Profit Margin
Balance Sheet (IDR bn)
9.8%
6.3%
8.1%
8.1%
Gross Profit Margin
34.6%
28.7%
32.7%
32.7%
EBITDA Margin
29.0%
25.3%
18.9%
23.2%
EBIT Margin
19.1%
12.3%
15.9%
15.9%
Pre-tax Margin
13.8%
9.6%
11.9%
11.8%
7.0%
4.2%
5.4%
5.6%
13.7%
8.1%
10.6%
11.0%
Cash
376
215
293
303
Account receivables
958
1,035
1,093
1,275
Inventories
591
737
923
919
Return on Assets
Other current assets
161
304
304
304
Operating Return on Assets
Current assets
2,085
2,291
2,614
2,801
Net fixed assets
12,367
14,498
14,843
16,060
Other non-current assets
Return on Total Capital
Return on Equity
4.1%
2.4%
3.1%
3.3%
11.1%
7.6%
10.5%
11.1%
443
406
406
406
14,895
17,195
17,863
19,267
Solvency Ratios
Accont payables
886
1,067
672
1,212
Debt-to-Equity
0.42x
0.62x
0.65x
0.65x
ST bank loans
119
496
805
831
Debt-to-Capital
0.30x
0.38x
0.40x
0.39x
1,332
832
1,141
1,179
Financial Leverage
1.57x
1.83x
1.95x
1.96x
Accrued liabilities
412
741
583
662
Interest Coverage
3.55x
4.44x
3.77x
3.77x
Other current liabilities
512
672
740
816
Current liabilities
3,262
3,808
3,941
4,700
Liquidity Ratios
Long-term debt
2,174
4,046
4,054
4,188
Current Ratio
0.64x
0.60x
0.66x
0.60x
686
583
634
697
Quick Ratio
0.41x
0.33x
0.35x
0.34x
6,122
8,437
8,628
9,585
Cash Ratio
0.12x
0.06x
0.07x
0.06x
23.53x
20.26x
32.53x
32.65x
Total assets
Current portion of LT debt
Other liabilities
Total liabilities
Cash Conversion Cycle
Shareholders' equity
Total liabilities & equity
8,773
8,759
9,235
9,681
14,895
17,195
17,863
19,267
Valuation Metrics
Out. shares (mn)
Cash flow statement (IDR bn)
7,663
7,663
7,663
7,663
P/E (x)
18.3x
25.1x
17.0x
15.4x
P/B (x)
2.0x
1.9x
1.7x
1.7x
1.2x
Net income
668
945
1,046
Depreciation and amortization
684
790
897
P/Sales (x)
1.8x
1.6x
1.4x
Change in working capital
245
(678)
580
EV/EBITDA (x)
0.0x
0.0x
0.0x
0.0x
Dividend yield
2.9%
3.8%
1.9%
2.8%
Operating cash flows
1,597
1,057
2,523
Net Capex
(2,815)
(1,135)
(2,114)
Other investing cash flow
36
Investing cash flow
(2,778)
Net borrowing/(repayment)
1,703
0
(1,135)
-
Key Residual income model assumptions
(2,114)
Dec-15F
Beta
0.92
7.2%
625
199
Risk free rate
Common Stock Dividends
(667)
(315)
(446)
Cost of equity
Other financing cash flow
(16)
(153)
(153)
ROE
12.6%
Dividend payout ratio
47.2%
Financing cash flow
157
(400)
Increase in cash flow
1,020
(161)
79
10
Ending cash flow
215
293
303
P/B
Fair Value
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
0.10
1.95
2,080
Page 1515
Initiating Coverage | SMCB
March 25 2015
NHKS Coverage & difference to
consensus
SMCB NHKS coverage | Initiate
SMCB analyst coverage | Mar 25 2015
Source: NHKS Research
Source: Bloomberg
NHKS to consensus
Ticker
SMCB IJ
Rating
Target Price
Date
TP Range
Buy (initiate)
2,095 3/25/2015
12M
Consensus TP (12M)
Date
Last Price
Date
1,525 3/24/2015
1,938
3/25/2015
NHKS TP (12M)
2,095
NHKS to consensus
8.1%
Date
Period
Period end
03/25/2015
FY 16
12/16
03/25/2015
FY 15
12/15
03/09/2015
FY 14
02/27/2014
FY 13
02/25/2013
Reported
Consensus EPS
EPS
137.0
% Surprise
-
NHKS
NHKS to consensus
Estimate
(%)
136
-0.4%
-
113.3
-
123
8.8%
12/14
87.0
120.7
-27.9%
N/A
N/A
12/13
124.3
133.2
-6.7%
N/A
N/A
FY 12
12/12
176.2
162.6
8.4%
N/A
N/A
03/06/2012
FY 11
12/11
139.0
130.0
6.9%
N/A
N/A
03/30/2011
FY 10
12/10
108.0
119.4
-9.6%
N/A
N/A
IDR bn
Sales
EBIT
EBITDA
EBT
Net Income
EPS
2015F
Consensus
NHKS
11,561
11,627
1,466
1,855
2,338
2,702
1,173
1,382
851
945
113
123
%
0.6%
26.5%
15.6%
17.8%
10.9%
8.8%
2016F
Consensus
NHKS
13,031
12,891
1,727
2,050
2,659
2,990
1,421
1,525
1,025
1,046
137
136
%
-1.1%
18.7%
12.5%
7.3%
2.0%
-0.4%
Source: Bloomberg, NHKS Research
PT NH Korindo Securities Indonesia — Company Research | www.nhsec.co.id
Page 1616
Initiating Coverage | SMCB
March 25 2015
Rating & Disclaimer
Research Team:
Reza Priyambada
[email protected]
Bagus Permadi
[email protected]
Raphon Prima
[email protected]
NH Korindo Securities Indonesia (NHKS) stock ratings
1.
2.
Period: Uniform 12-month (52-week)
Rating system: Based on a stock’s absolute return from the date of publication
 Strong Buy: high conviction Buy rated stocks
 Buy: greater than 15%
 Hold: 0% and +15%
 Reduce: less than 0%
Compliance notice




NHKS does not have a stake greater than or equal to 1% in PT Holcim Indonesia, Tbk as of the preparation date.
NHKS has not provided this material to any institutional investor or other third party in advance.
The analyst and his/her spouse do not own any securities of PT Holcim Indonesia, Tbk as of the preparation date.
This report correctly reflects the analyst’s opinion and was written without any external influence or intervention.
DISCLAIMER
This report, and any electronic access to it, is restricted to and intended only for clients of PT NH Korindo Securities Indonesia
or a related entity to PT NH Korindo Securities Indonesia. This document is for information only and for the use of the recipient. It is not to be
reproduced or copied or made available to others. Under no circumstances is it to be considered as an offer to sell or solicitation to buy any
security. Any recommendation contained in this report may not to be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy, completeness and reliability cannot be guaranteed. We
expressly disclaim any responsibility or liability (express or implied) of PT NH Korindo Securities Indonesia, its affiliated companies and their
respective employees and agents whatsoever and howsoever arising (including, without limitation for any claims, proceedings, action, suits,
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or any part of the contents of this report and neither PT NH Korindo Securities Indonesia, its affiliated companies or their respective employees or agents accepts liability for any errors, omissions or misstatements, negligent or otherwise, in the report and any liability in respect of
the report or any inaccuracy therein or omission therefrom which might otherwise arise is hereby expresses disclaimed.
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Page 1717