8M23 Cement Sales

Positive growth in Aug-23. Domestic cement sales volume went up +2.6% MoM, +1.9% YoY in Aug-23 to 6.0 million tons, bringing its cumulative 8M23 figure to 39.2 million tons (-3.1% yoy). The positive growth in August was mainly driven by bulk cement sales, which came in at 1.8 million tons (+7.4% MoM, +12.7% YoY), while bagged cement sales were relatively flat (4.2 million tons; +0.7% MoM, +0.8% YoY). The two cement companies under our coverage posted positive sales volume growth; INTP booked 1.6 million tons (+2.8% MoM, +7.9% YoY) with a cumulative 8M23 figure of 10.8 million tons (+7.7% YoY), while SMGR recorded 3.1 million tons (+4.2% MoM, +13.4% YoY) with a cumulative figure of 20.2 million tons (+6.2% YoY).

SMGR grabs more market share thanks to bulk cement. SMGR recorded a better performance than INTP in Aug-23,  with a market share of 51.6% (+80bps MoM, +230bps YoY), almost double that of INTP (27.2%; -150bps MoM, +150bps YoY).  Given the fact that bulk cement is currently the main driver of domestic cement sales growth (as mentioned in the previous paragraph) and the potential for the increase in demand for bulk cement from IKN (cement sales in Kalimantan grew +27.7% YoY in Aug-23) and other government projects, we believe SMGR is in a better position to grab more market share than INTP, considering its SOE status and the rather significant portion of bulk cement in its sales portfolio (in Aug-23, bulk cement contributed 30.6% of SMGR’s sales [+210bps MoM, +320bps YoY]). Also, according to our research, cement prices haven’t fluctuated much in the last three months, indicating that the price war in the sector has subsided, especially in Java.

FY23F and FY24F outlook. Considering the rather satisfactory cement sales volume in the first two months of 2H23 (Jul-Aug) (11.8 million tons, +6.1% YoY), we are optimistic that demand for cement will continue to recover, with an FY23F growth projection of +1-2% YoY, driven mainly by bulk cement sales (which contributed 30% of cement sales in Jul-Aug 2023, beating 1H23 avg. of 27.4%). However, we expect some slowdown in sales at the beginning of next year (FY24F) due to the possible changes in government and regulations following the election (which might lead to delays in government and private projects), and we project cement sales to be relatively flat in FY24F.

NEUTRAL. We reiterate our NEUTRAL rating for the cement sector. We project that domestic cement sales volume will grow slightly in FY23F (+1-2% YoY), driven mainly by bulk cement. We have BUY recommendations for SMGR (TP: IDR 7,925; 16.9x FY24F P/E) and INTP (TP: IDR 12,625; 20.5x FY24F P/E). Main risks: Fluctuations in cement demand, fuel cost, and distribution cost.