Don’t Sweat Small Stuff
Key Takeaways
• In our view, the cement sector has potential to perform better in FY23F. This was driven from: 1) the increase in the infrastructure budget by 7.8% YoY to IDR392tn; 2) the Indonesian residential sector is still the largest consumer to absorb national cement.
• The IKN development also acts as a proxy for the cement sector, through phase 1, the development had reached 348 ha with a project value of IDR5.3tn.
• We expect for a more normalized coal price in FY23F in the range of USD210-230 per ton or closer to the FY21 price according to the consensus.
• The DMO policy will play a key role in supressing expenses as coal contributes to ~40% of the COGS. Now, SMGR and INTP have secured DMO quota of 50% for FY23F.
• Particularly, for SMGR, efficiency and market share expansion are likely to happen, following the consolidation with SMBR which is expected to increase the company’s margin in the future.
• Despite for more normalized coal price in FY23F, the geopolitics conflict could disturb the potentially positive outlook for cement industries. Moreover, La Nina is predicted by the WMO to last for quite a long time in FY23F. Thus, this will disrupt the coal supply chain, increasing its price.
• We change the recommendation from NEUTRAL to OVERWEIGHT outlook for the cement sector in FY23F. The valuation is based on SMGR IJ and INTP IJ at the level -1STD PE band (average 3 years). We believe in the rising demand on property and higher infrastructure budget on FY23F will boost domestic consumption.
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