Semen Indonesia, Prospects Lie In Growing Capacity
SMGR stands to benefit the most from higher domestic cement demand as it has the most unutilised capacity among its peers. The diversified locations of its plants also help to facilitate the group’s cement supply across Indonesia. SMGR is trading at c.1 SD below its 5-year average forward rolling P/E, which we deem a good entry point. Reiterate BUY on the counter.
Leveraging on growing capacity
SMGR increased the annual production capacity at its three Indonesia plants from 23m tonnes in 2012 to 26m tonnes by end-2013. Including the additional capacity from the newly-acquired Thang Long Cement, SMGR’s total annual production now stands at 28m tonnes. As its plant utilisation is around 92% – the lowest among Indonesian cement makers – the company stands to benefit the most from rising cement demand. Driven by capacity increase and room to ramp up utilisation, its domestic market share grew to 43.8% in Nov 2013 from 40.9% in Dec 2012.
Extra capacity from Semen Padang too
SMGR targets to finish construction on its new IDR3.2trn Indarung VI cement plant in 2Q16, which will have a capacity of 3m tonnes per annum (tpa). A 412ha limestone mine is being prepared to supply raw materials to the plant. However, it is far from ready as completion of the necessary roads and other infrastructure will be gradual.
Indarung VI will increase SMGR’s subsidiary, Semen Padang’s annual cement capacity to 10.4m tonnes from 6.5m tonnes currently. Elsewhere, the company is building a new IDR286bn mill in Dumai, with construction of this 900,000 tpa mill slated for completion in 3Q14.
New Rembang plant
SMGR announced that it has started clearing land to make way for a 3m-tonne greenfield facility in Rembang, Central Java. It has secured the required ~190ha for the upcoming facility, which we foresee will be completed by end-2016. Going forward, SMGR may acquire up to 500ha of land to further expand the plant’s capacity.
Maintain BUY
Given the diversified location of its plants, we see SMGR reaping the most benefits from growing cement demand across Indonesia. The stock is now trading at c.1 SD below its 5-year average forward rolling P/E, which we deem a good entry point. Maintain BUY.
