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Decent growth in May. Domestic cement sales volume went up +63.4% MoM, +24.9% YoY to 4.9 million tons in May, bringing its cumulative 5M23 figure to 22.1 million tons (-5.8% yoy). Bagged cement sales were recorded at 3.6 million tons (+72.3% MoM, -8.7% YoY), while bulk cement sales came at 1.3 million tons (+42.6% MoM, +3.1% YoY). INTP posted sales of 1.3 million tons (+56.5% MoM, +33.5% YoY) and a cumulative 5M23 figure of 6.1 million tons (+4.7% YoY). Meanwhile, SMGR posted sales of 2.6 million tons (+71.7% MoM, +37.5% YoY) with a cumulative 5M23 figure of 11.5 million tons (-0.2% YoY).
Signs of life outside Java. In general, cement sales in Apr + May-23 declined -6.3% YoY, with bagged cement sales dropping -7.6% YoY and bulk cement sales growing +4.9% YoY. The decline was mainly caused by the fuel price hike and elevated coal prices, forcing cement producers to keep their ASPs high. Central Java saw the biggest drop in sales (-18.3% YoY), followed by East Java (-6.9% YoY). However, we observed positive growth outside Java, particularly in Kalimantan (+3.7% YoY) and Nusa Tenggara (+2.8% YoY).
Two-horse race. Throughout Apr + May-23 SMGR booked sales growth of +0.3% YoY to 4.0 million tons, while INTP posted +10.8% YoY reaching 2.2 million tons, enabling both companies to increase their market share to 52.4% and 27.0%, respectively. As of Jun-23, the selling prices of SMGR (Semen Gresik) and INTP’s (Semen Tiga Roda) products in Jakarta were +17-26% higher than those of 2nd tier players such as Conch (Garuda Conch) and Grobogan. However, the prices of the fighting brands of SMGR (Semen Padang) and INTP (Semen Rajawali) were at the relatively same levels as their competitors. Such a strong brand composition enabled SMGR and INTP to gain more market share.
NEUTRAL. We reiterate our NEUTRAL rating for the cement sector. We project that sales volume will remain flat throughout the rest of the year (-1.0 to +1.0% YoY); while we might see positive growth in bulk cement sales, we expect bagged cement sales to remain under pressure. We have BUY for SMGR (TP: IDR 7,630; -1.0x 5-year PER average) and INTP (TP: IDR 12,200; -0.70x 5-year PER average). Main risks: Declining demand and higher distribution costs.
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