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Sales volume growth of +11.3% YoY in Nov-23. Domestic cement sales volume came in at 6.2mn tons in Nov-23 (-2.2% MoM, +11.3% YoY), translating into a cumulative 11M23 figure of 57.8mn tons (+2.5% YoY). The slight MoM decline was mainly caused by the rainy season, which led to logistic delays. Bulk cement sales fell -3.1% MoM, while bagged cement slipped -1.8% MoM. Regarding the 11M23 figures, we noticed that bulk cement sales experienced positive growth, coming in at 16.6mn tons (+11.9% YoY), while bagged cement sales slipped a bit to 41.4mn tons (-0.8% YoY). All areas in Indonesia experienced significant growth in cement sales in Nov-23, both bagged and bulk; bagged cement sales in Java (+10.0% YoY) grew slightly better than outside Java (+9.3% YoY), while bulk cement sales outside Java (+36.1% YoY) experienced much better growth than in Java (+14.8% YoY), supported by the development of IKN.
Better margins for INTP. INTP recorded a quite solid sales volume in Nov-23, reaching 1.7mn tons (+3.1% MoM, +24.0% YoY), which translates to cumulative 11M23 revenue of 15.8mn tons (+11.3% YoY). The significant growth was mainly driven by higher demand from Java (partly due to the tax incentives for low-to-mid residential properties), while outside Java, INTP has started to supply bulk cement to IKN and made efforts to increase distribution to their terminals in North Sumatera (Kuala Tanjung), Palembang, and Lampung to cater the demand from Trans Sumatera toll road project. Also, INTP has completed the acquisition of Semen Grobogan for IDR 1.5T, giving the company an additional production capacity of 2.5mn tons/annum (Grobogan’s sales volume will be consolidated into INTP’s books starting Dec-23). We expect to see the impact of the merger next year , and we project INTP to book a profit margin of 32.0% (FY23F: 31.8%) and an EBITDA margin of 19.7% (FY23F: 19.5%).
Update from IKN. According to the Nusantara Capital City Authority (OIKN), most of the key projects and infrastructure development (including the Presidential Palace, toll road, airport, housing, and others) in IKN is going according to plan, with the progress reaching 60.3% by the end of Nov-23, with the expected completion date in 3Q24 (Indonesia’s 79th Independence Day). Most of the cement supply to IKN is brought from regions outside Kalimantan (c.95%). We expect cement demand from Kalimantan will grow at a strong pace until 2030, in line with the government’s plans to build more infrastructure, including digital cities, airports, connecting roads, and other facilities. We project domestic cement sales volume to grow +2-3% YoY in 2023F, and it will continue to grow at a steady pace in 2024F.
Maintain NEUTRAL. We reiterate our NEUTRAL rating for the cement sector. We project domestic sales volume will grow +2-3% YoY in 2023F, driven mainly by bulk cement. We have BUY recommendations for SMGR (TP: IDR 7,925; 13.6x FY24F P/E) and INTP (TP: IDR 12,625; 16.6x FY24F P/E). Risks: 1) Fluctuations in cement demand, 2) higher fuel and distribution costs.
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