Indonesia Cement Sector

Transcription

1 Indonesia Industry Focus Indonesia Cement Sector Refer to important disclosures at the end of this report DBS Group Research. Equity 29 Sep 2015 Incumbents under siege Supply-demand balance will remain skewed Stiff competition ahead margins under pressure Slashed earnings to reflect current situation Maintain FULLY VALUED calls for INTP and SMGR with lower TPs Skewed supply-demand balance. We forecast cement sales volume will drop by 3.5% this year (vs 2.6% growth previously) to 57.7m tonnes, despite encouraging demand recovery in August (8M15 domestic cement sales was 37.4m tonnes, down 1.3% y-o-y). The correlation between domestic direct investment (DDI) in the tertiary sector and cement sales support our argument for weak cement sales in 4Q as well. And, given 19.3m tonnes expected additional design capacity coming online by 2017, utilisation is expected to slump further to 66% (back to 2004 level). Stiff competition, continued shift to bulk segment will pressure margins. The entry of new players is turning up the heat on the Big 3 cement producers, by attacking the more vulnerable bulk segment where there is minimal product differentiation, and pricing point is cheaper (c.5%) than bag cement. The increasing share of bulk segment sales and the challenging demand & supply situation, especially in the incumbents stronghold regions, will force the incumbents to sacrifice margins to either defend or expand market share in the long run. Also, the pricing behavior of foreign players has been fluid with Anhui Conch (in Kalimantan) being the most disruptive thus far. Slashed earnings, maintain FULLY VALUED calls (with lower TPs) for INTP and SMGR. We slashed FY15-17F earnings for INTP and SMGR by 15.9%-23.8% after reflecting YTD domestic cement demand, a slower overall economy, and more intense competition and lower margins going forward. We now have one of the lowest estimates in the street. We also slashed target prices, pegging them to -1SD of mean forward PE, similar to 2004 levels when industry utilisation was low. Current valuation is near the sector s lows as cement producers stocks have dipped 28-54% YTD, however de-rating may continue due to shifts in competitive landscape and threat from new entrants. JCI : 4, Analyst Edward Ariadi Tanuwijaya edward.tanuwijaya@id.dbsvickers.com Tjen San Chong tjensan@alliancedbs.com STOCKS Source: DBS Vickers Indocement Tunggal P. : Indocement was established in The expanded heavily in the 90 s, prior to Heidelberg Cement Group becoming the majority shareholder in The company trades cement product under Tiga Roda brand. Semen Indonesia : Semen Gresik was established in 1957 as stateowned cement producer before changing its brand name to Semen Indonesia recently. In 1995 the company completed an acquisition of Semen Padang and Semen Tonasa. It is currently the largest player in the market with more than 40% market share. Domestic cement demand trend m tonnes % CAGR Price Mkt Cap Target Performance (%) Rp US$m Price Rp 3 mth 12 mth Rating Indocement 16,625 4,164 14,600 (19.0) (26.5) FULLY VALUED Semen Indonesia 9,150 3,693 7,800 (21.5) (40.7) FULLY VALUED % CAGR Source: Indonesia Cement Association (ASI), DBS Vickers % CAGR F 2016F 2017F ed-sgc / sa- MA

2 Industry Focus Indonesia Cement Sector Supply-demand balance will remain skewed August domestic cement sales jumped 56.3% m-o-m to 5.3m tonnes, taking 8M15 domestic cement sales to 37.4m tonnes, down 1.3% y-o-y. Although this is mostly driven by the low base effect in July (Lebaran period), the surge in cement sales in August has breathed some positive sentiment into the sector. Despite the encouraging August data, we are still not convinced there will be a sharp recovery in domestic demand the rest of the year. The expected weak GDP growth and flat property presales this year have contributed to the declining cement demand thus far. The long-term multiplier effect from the much heralded infrastructure development cycle remains a key positive catalyst. But, volumes will not surge in the near term. For this year, we forecast domestic demand for cement will decline by 3.5% y-o-y to 57.7m tonnes. This is premised on the accelerating rollout of infrastructure projects, aas well as more high-rise projects by developers, from next year onwards. We forecast 12%/14% growth in bulk cement sales for FY16/17F, but are sticking to only 4%/5% growth for bag segment (slower than GDP growth assumption, which is line with the post-2013 trend). Based on the above growth assumptions, domestic cement demand would reach 61m tonnes (+5.7% y-o-y) in FY16 and 65.3m tonnes (+7.2% y-o-y) in FY17. These imply domestic cement demand will continue to grow but at a slower rate (3% CAGR) for the next three years after experiencing 10.1% growth between 2010 and Domestic cement demand (historical and forecast) m tonnes 11% CAGR 3% CAGR Channel checks suggests 19.3m tonnes of new capacity will come online between now and As a result, we expect industry utilisation rate to drop from 86% in 2014 to 66% in 2017, similar to 2004 levels. Between 2004 and 2010, domestic cement demand expanded at 5.2% CAGR, matching Indonesia s average real GDP growth for the period. The presence of new foreign players has also added to the challenges faced by incumbents. Refer to APPENDIX for Indonesia cement demand, supply and utilisation rate trends. Our recent study revealed that growth in domestic direct investment (DDI) in the tertiary sector is a relatively good indicator of the direction of cement demand for the next one or two quarters. The chart implies that 4Q15 cement demand growth will remain slow, suggesting full year sales would meet our FY15 domestic volume forecast. Correlation between DDI tertiary sector and cement sales 80% 60% 40% 20% 0% -20% -40% 3 period moving average DDI Tertiary sector growth (LHS) 3 period moving average cement sales growth (RHS) 10% 8% 6% 4% 2% 0% -2% -4% -6% 40 5% CAGR F 2016F 2017F 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Source: CEIC, Indonesia Cement Association (ASI), DBS Vickers Source: Indonesia Cement Association (ASI), DBS Vickers Page 2

3 Industry Focus Indonesia Cement Sector Can the incumbents hold the fort? For over a decade, the Big 3 cement producers have commanded more than 88% market share of the domestic cement market. The emergence of new players such as Thailand s Siam Cement (SCG), China s Anhui Conch and Semen Merah Putih (part of Wilmar group) is a substantial threat to the incumbents. There has not been material impact in the bag cement segment, which currently accounts for 77% of total domestic cement sales. However, the incumbents are feeling the heat, and gradually losing market share, in the bulk cement segment; the new players are attacking this segment because there are less stringent entry barriers (i.e. little differentiation between products). Market share of incumbents in bag segment 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% SMGR INTP SMCB Others 42.8% 28.0% 14.3% 14.9% M15 6M15 8M15 Source: Indonesia Cement Association (ASI), DBS Vickers Steeper declines in market share in the bulk segment 60% 50% 40% 30% SMGR INTP SMCB Others 42.7% 29.2% The Java and Kalimantan markets are facing the biggest supply risk with the emergence of prominent new players such as Anhui Conch, Siam Cement and Semen Merah Putih. These markets also registered steeper declines (y-o-y) than other regions (i.e. Sumatra, Sulawesi and other East Indonesia area). Therefore, we expect the situation to hurt both INTP and SMGR. Market share of incumbents in Java 45% 40% 35% 30% 25% 20% 15% SMGR INTP SMCB 38.6% 37.2% 17.7% 1M06 7M06 1M07 7M07 1M08 7M08 1M09 7M09 1M10 7M10 1M11 7M11 1M12 7M12 1M13 7M13 1M14 7M14 1M15 7M15 Source: Indonesia Cement Association (ASI), DBS Vickers Market share of incumbents in Kalimantan 70% 60% 50% 40% 30% 20% 10% 0% SMGR INTP SMCB 52.0% 27.8% 9.8% 1M06 7M06 1M07 7M07 1M08 7M08 1M09 7M09 1M10 7M10 1M11 7M11 1M12 7M12 1M13 7M13 1M14 7M14 1M15 7M15 Source: Indonesia Cement Association (ASI), DBS Vickers 8M15 cement sales: y-o-y decline by region 20% 16.6% Kalimantan -8.6% 10% 11.5% Java -1.2% 0% M15 6M15 8M15 Source: Indonesia Cement Association (ASI), DBS Vickers Sumatra Sulawesi -0.6% 0.3% Others 1.3% -10% -8% -6% -4% -2% 0% 2% Source: Indonesia Cement Association (ASI), DBS Vickers Page 3

4 Industry Focus Indonesia Cement Sector Demand distribution by region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Java Sumatra Kalimantan Sulawesi Others 5.2% 5.8% 6.4% 6.4% 6.4% 7.0% 7.4% 7.6% 7.6% 8.0% 7.2% 7.0% 60.3% 57.7% 55.7% 55.1% 53.8% 55.3% 55.3% 56.4% 56.3% 55.6% 56.7% 56.4% M15 6M15 8M15 Source: Indonesia Cement Association (ASI), DBS Vickers Continued shift to bulk cement adding pressure on margins The slowdown in property presales this year and accelerating infrastructure development has led to the increasing share of bulk segment in the domestic cement market. Infrastructure spending as % of GDP Rp tr Infrastructure Investment (LHS) % of GDP (RHS) F Source: JICA presentation (based on state budget data), DBS Vickers Property presales slowing down 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Rpbn +35% CAGR flattish F 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 8M15 bulk segment sales grew 6% y-o-y to 8.4m tonnes, which helped to offset the slack in bag segment sales (which fell 3.3% y-o-y in the period). The share of bulk cement sales has risen to a record high of 23% in 8M15, from a low of 15.6% in Growth in the bulk segment was more than double that for bag cement between 2010 and Hence, we estimate bulk cement will account for 27% of total domestic sales by Share of Bulk and Bag cement sales in Indonesia 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 16% 17% 16% 16% 16% 19% 20% 21% 22% 23% 24% 25% 27% 84% 83% 84% 84% 84% 81% 80% 79% 78% 77% 76% 75% 73% Bag 2012 Bulk Source: Indonesia Cement Association (ASI), DBS Vickers As mentioned earlier, the incumbent cement producers are facing more pressure in the bulk segment because there is little product differentiation, making it a more competitive market. This has also partly resulted in bulk cement being c.5% cheaper than bag cement. And, coupled with the declining utilisation rate, these will lead to further margin erosion going forward. EBITDA margins vs utilisation rate 00% 95% 90% 85% 80% 75% 70% 65% 60% Capacity utilisation rate (LHS) INTP's EBITDA margin (RHS) SMGR's EBITDA margin (RHS) Source: Bloomberg Finance L.P., DBS Vickers M F 2015F 2016F 2016F 2017F 2017F 45% 40% 35% 30% 25% 20% Source: Companies, DBS Vickers Page 4

5 Industry Focus Indonesia Cement Sector The pricing behaviour of foreign players has been fluid with Anhui Conch (new plant in East Kalimantan) being the most disruptive thus far. The price points for Anhui Conch s products are generally 10-15% lower than INTP and SMGR s products sold in the same regions. We need to bear in mind that Anhui Conch has not entered Java market (which represents 56% of total domestic cement demand). There is further risk of margin compression as the benefits of lower coal and oil prices are offset by a weaker IDR (c.60% of cost is transacted in USD) and electricity tariff hike. Cash cost breakdwon Coal/fuel Electricity Distribution, transportation and handling Direct labor Others 100% 90% 80% 38.2% 42.3% 70% 60% 7.2% 50% 7.3% 40% 23.0% 17.5% 30% 20% 14.9% 14.2% 10% 16.6% 18.7% 0% SMGR INTP Source: Companies, DBS Vickers Energy prices & USD/IDR trend ICP (LHS) Electricity tariff - I4 (LHS) Coal (LHS) USD/IDR (RHS) Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Source: State-owned electricity company (PLN), Ministry of Energy and Mineral Resources (ESDM), Bloomberg Finance L.P., DBS Vickers. Note: The indexing used Jan 2014 price as 100. Page 5

6 Industry Focus Indonesia Cement Sector Slash forecast earnings; maintain cautious view on sector We revised down FY15/16/17F domestic sales volume for both INTP and SMGR by % after adjusting for the current domestic cement demand dynamics, a slower Indonesian economy ahead, and intense competition in the major regions. These led us to cut forecast revenues by % for those years. And, we adjusted for weaker margin expectations premised on cement producers wanting to maintain or gain market share as they fear utilisation rates would drop, and the benefits of low coal and oil prices are offset by an electricity tariff hike and weaker IDR. All in, we slashed FY15/16/17F earnings for INTP and SMGR by %, resulting is our earnings estimates being among the lowest in the street. We also cut target prices by 27% for INTP (to Rp14.600) and 35% for SMGR (to Rp7,800), pegged to -1SD of mean PE forward. Our target prices imply 12-14% downside risk for both counters. Therefore, we maintain our FULLY VALUED calls. Refer to APPENDIX for summary of changes to our assumptions and earnings projections. Further downside, but valuations are near record lows Indonesia s cement stocks have tumbled 28-55% YTD, and their weighting in the JCI has fallen back to pre-2009 levels. More external pressure on the fragile sentiment in Asia markets (we have turned risk-off on Asian markets after the CNY revaluation) and still-high foreign shareholdings, should lead to a further de-rating of Indonesia s cement stocks. At current valuation multiple, there is not significant gaps between SMGR and INTP. However, we prefer expsoure to SMGR for its more diversified demand spread throughout Indonesia islands (i.e. not just the Java island, which is the most lucrative market but with the stiffest competition going forward). In addition, the three brands under SMGR command 38%, 43% and 64% market share in Java, Sumatra and Sulawesi, respectively. INTP is currently trading at 13.3x FY16F PE (just below its mean forward PE) and 8.6x FY16F EV/EBITDA. These are close to trough valuations. The stock would be attractive enough to warrant accumulating if the stock price drops by another c.12% to trade at 11.7x FY16F PE (-1SD of mean forward PE). Cement Producers: Stock performance YTD 0% -10% -20% -30% -40% -50% -60% -33.5% -43.5% End 1Q15 End 2Q15 YTD -54.7% INTP SMGR SMCB SMBR Source: Bloomberg Finance L.P, DBS Vickers. Note: YTD price is as of 23Sep2015 Cement Sector: Smaller weighting in the JCI % INTP SMGR SMCB -27.6% 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 YTD Source: Bloomberg Finance L.P, DBS Vickers Cement Stocks: Foreign ownership (as % of free float) 84% 82% 80% 78% 76% 74% 72% INTP SMGR SMCB 70% Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Source: Indonesia Central Securities Depository (KSEI), Bloomberg Finance L.P, DBS Vickers 77.7% 76.5% 75.1% SMGR is currently trading at 12 x FY16F PE (at mean forward PE) and 7.5x FY16F EV/EBITDA. The stock had bottomed out recently at Rp7,200 (on 24 Aug) before recovering sharply to current levels. Page 6

7 Industry Focus Indonesia Cement Sector INTP PE Band Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Bloomberg Finance L.P, DBS Vickers SMGR PE Band Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Bloomberg Finance L.P, DBS Vickers +2SD, SD, 22.3 Ave, SD, SD, SD, SD, 16.7 Ave, SD, SD, 6.9 INTP EV/EBITDA Band Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Bloomberg Finance L.P, DBS Vickers SMGR EV/EBITDA Band Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: Bloomberg Finance L.P, DBS Vickers +2SD, SD, 12.1 Ave, SD, 7.9-2SD, SD, SD, 11.1 Ave, 8.5-1SD, 5.9-2SD, 3.3 JCI Index PE Band Source: Bloomberg Finance L.P, DBS Vickers Page 7

8 Industry Focus Indonesia Cement Sector APPENDIX Summary of assumptions changes INTP SMGR FY15F FY16F FY17F FY15F FY16F FY17F Domestic volume Now 16,742 17,614 18,732 25,042 26,464 28,330 ('000 tonnes) Prev 18,495 19,843 21,080 27,350 29,100 31,000 Chg (%) -9.5% -11.2% -11.1% -8.4% -9.1% -8.6% Revenue Now 18,573 20,286 22,375 25,698 27,877 30,603 in Rpbn Prev 21,340 24,134 27,224 28,990 32,134 35,811 Chg (%) -13.0% -15.9% -17.8% -11.4% -13.2% -14.5% GP margin Now 44.6% 44.2% 43.7% 39.4% 38.8% 38.2% Prev 45.2% 44.1% 42.9% 41.7% 40.6% 39.4% EBITDA margin Now 32.0% 31.1% 30.1% 25.8% 25.4% 24.8% Prev 33.7% 32.1% 30.3% 29.1% 28.3% 27.0% Operational profit Now 5,030 5,310 5,636 5,486 5,806 6,232 in Rpbn Prev 6,143 6,556 6,911 7,139 7,583 8,007 Chg (%) -18.1% -19.0% -18.5% -23.2% -23.4% -22.2% Net profit Now 4,481 4,590 4,796 4,294 4,530 4,880 in Rpbn Prev 5,330 5,611 5,913 5,565 5,941 6,332 Chg (%) -15.9% -18.2% -18.9% -22.8% -23.8% -22.9% TP Now 14,600 7,800 in Rp/sh Prev 20,000 12,000 Chg (%) -27% -35% Recommendation Now FULLY VALUED FULLY VALUED Prev FULLY VALUED FULLY VALUED Source: DBS Vickers Indonesia cement producers: demand, supply and utilisation rate dynamic 100,000 '000 tonnes Demand (000 tons) - LHS Capacity (000 tons) - LHS 96% 100% 90% 80,000 Utilization rate - RHS 80% 66% 70% 60,000 67% No additional capacity until 2009 Demand growth in-line with GDP growth 60% 50% 40,000 40% 30% 20,000 20% 10% F 2016F 2017F 0% Source: Cement producers, Indonesia Cement Association (ASI), DBS Vickers. Note: Utilisation rate is based on effective (operational) capacities. Page 8

9 Industry Focus Indonesia Cement Sector Indonesia cement producers: historical and estimated additional design capacities Company Location F 2016F 2017F East Java 11,600 14,000 14,400 14,400 14,400 14,400 Semen Indonesia (SMGR IJ) Central Java ,000 3,000 West Sumatra 6,330 6,400 7,300 7,300 10,300 10,300 South Sulawesi 4,620 7,300 7,800 8,300 8,300 8,300 22,550 27,700 29,500 30,000 36,000 36,000 West Java 16,000 16,000 17,900 22,300 22,300 22,300 Indocement (INTP IJ) South Kalimantan 2,600 2,600 2,600 2,600 2,600 2,600 Central Java ,600 18,600 20,500 24,900 24,900 24,900 West Java 5,600 5,600 5,600 5,600 5,600 5,600 Holcim Indonesia (SMCB IJ) Central Java 3,500 3,500 3,500 3,500 3,500 3,500 East Java - - 1,700 3,400 3,400 3,400 9,100 9,100 10,800 12,500 12,500 12,500 South Sulawesi 2,300 2,300 4,000 4,000 4,000 4,000 Riau 1,200 1,200 1,200 1,200 1,200 1,200 Bosowa East Java ,100 1,100 Papua ,500 3,500 5,200 5,200 7,050 7,050 Semen Baturaja (SMBR IJ) South Sumatra 1,250 2,000 2,000 2,000 2,000 3,850 Andalas (Lafarge) Aceh 1,600 1,600 1,600 1,600 1,600 1,600 Kupang NTT South Kalimantan - - 1,500 1,500 1,500 1,500 Anhui Conch West Java ,000 2,000 Others ,500 1,500 3,500 3,500 Siam Cement West Java ,800 1,800 Semen Merah Putih (Wilmar) Banten ,750 4,250 5,750 Panasia Central Java ,500 1,500 Puger East Java Jui Shin West Java ,500 1,500 1,500 Total 57,150 63,050 72,400 81,800 97, ,100 Source: Cement producers, Indonesia Cement Association (ASI), DBS Vickers Page 9

10 Industry Focus Indonesia Cement Sector Cement regional peers valuation Ticker Price Market Cap PE (x) EV/EBITDA (x) EBITDA margin (%) ROE Company Code (lcl currency) (USD m) FY15 FY16 FY15 FY16 FY15 FY16 FY15 Semen Indonesia SMGR IJ 9,150 3, % Indocement Tunggal INTP IJ 16,625 4, % Holcim Indonesia * SMCB IJ nm % Weighted average Indonesia % Anhui Conch Cement 914 HK 24 15, % Asia Cement (China) Hldgs * 743 HK nm % China National Building Material 3323 HK 5 3, % China Shanshui Cement 691 HK 6 2, nm West China Cement * 2233 HK nm % CR Cement * 1313 HK 4 3, nm % Weighted average China % Siam Cement SCC TB , % Weighted average Thailand % Source: Bloomberg Finance L.P, DBS Vickers. Note: (*): not under our coverage, estimates are based on Bloomberg consensus numbers. Page 10

11 Industry Focus Indonesia Cement Sector Stock Profiles Page 11

12 Indonesia Company Guide Indocement Tunggal P. Edition 1 Version 1 Bloomberg: INTP IJ Reuters: INTP.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 29 Sep 2015 FULLY VALUED Last Traded Price: Rp16,625 (JCI : 4,120.50) Price Target : Rp14,600 (-12% downside) (Prev Rp20,000) Potential Catalyst: Rebound in property presales, better execution from nationwide infrastructure development and lower energy price Where we differ: Having one of the lowest estimates in the street Analyst Edward Ariadi Tanuwijaya edward.tanuwijaya@id.dbsvickers.com Tjen San Chong tjensan@alliancedbs.com Price Relative Rp 28, , , , , , , , , , Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Indocement Tunggal P. (LHS) Relative Index Relative JCI INDEX (RHS) Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 19,996 18,573 20,286 22,375 EBITDA 6,732 5,940 6,304 6,732 Pre-tax Profit 6,790 5,819 5,960 6,228 Net Profit 5,271 4,481 4,590 4,796 Net Pft (Pre Ex.) 5,271 4,481 4,590 4,796 Net Pft (ex. BA gains) N/A N/A N/A N/A EPS (Rp) 1,432 1,217 1,247 1,303 EPS Pre Ex. (Rp) 1,432 1,217 1,247 1,303 EPS Gth (%) 5 (15) 2 4 EPS Gth Pre Ex (%) 5 (15) 2 4 Diluted EPS (Rp) 1,432 1,217 1,247 1,303 Net DPS (Rp) 1, BV Per Share (Rp) 6,733 6,600 6,995 7,425 PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) Earnings Rev (%): (16) (18) (19) Consensus EPS (Rp): 1,338 1,431 1,543 Other Broker Recs: B: 19 S: 8 H: 8 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P. THE RUNNER-UP Maintain FULLY VALUED call with lower TP. We cut FY15/16/17F domestic sales volumes by 9.5%/11.2%/11.1% after adjusting for YTD sales. We also forecast declining margin going forward given intensifying competition for market share and higher COGS (from US$-linked material and energy price in weakening IDR environment). All in, we slashed FY15/16/17F earnings by 15.9%/18.2%/18.9%, resulting in this being one of the lowest estimates in the street. YTD sales volume drops more than industry. INTP s 8M15 cement sales fell 7.5% y-o-y to 10.4m tonnes (industry volume fell 1.2%). INTP s main markets - Java and Kalimantan posted relatively larger declines than other regions. These regions account for 74% and 6.8% of INTP s domestic cement sales volume, respectively. Intense competition in Western Java will erode margins. We estimate 76% of the planned incoming capacity in will be located in West Java. We expect new players to sacrifice margins to gain market share as they ramp-up utilisation rates. Therefore, our EBITDA margins are trending down for the next three years. INTP still commands the highest EBITDA margins in the sector. Valuation: Our target price of Rp14,600 is pegged to 11.7x FY16F EPS, at (-)1SD of 10-year mean forward PE (similar to 2004 levels when utilisation rates were depressed). Key Risks to Our View: Significant delays in new players greenfield cement plants. This would reduce competition in SMGR s strongholds, reduce the severity of competition from new players (better pricing power for incumbents), and lift utilisation rates. Recovery in property presales. We expect property presales to remain flat going forward after a 3-4 year boom ( ). But a sharp recovery in property presales would be upside risk to our cement volume sales assumptions. The property sector remains the major cement consumer in Indonesia. At A Glance Issued Capital (m shrs) 3,681 Mkt. Cap (Rpbn/US$m) 61,200 / 4,164 Major Shareholders HC Indocement Gmbr (%) 64.1 Mekar Perkasa (%) 13.0 Free Float (%) m Avg. Daily Val (US$m) 2.4 ICB Industry : Industrials / Construction & Materials ASIAN INSIGHTS VICKERS SECURITIES ed: SGC / sa: MA

13 Company Guide Indocement Tunggal P. CRITICAL DATA POINTS TO WATCH Earnings Drivers: Domestic cement volume driving top line growth. We forecast industry demand will grow modestly (in line with Indonesia s real GDP growth) for the next three years as the country is entering normal growth state. As the 2nd largest cement producer in the country, INTP should experience similar growth. In addition, we expect INTP to lose market share to new foreign players. We forecast INTP s sale volume will grow by 1% CAGR over F, a bearish stance considering that consensus is expecting mid-single-digit % growth for the period. Limited price upside because of competition. We do not expect cement prices to rise significantly going forward as incumbent players (including INTP) would be forced to defend their market share from new players, which are willing to sacrifice margins to grab market share. The skewed supplydemand imbalance will also see utilisation rate of incumbent players remain depressed. We forecast only 1.3% CAGR in ASP/tonne between 2014 and 2017F; this is minimal compared to consensus expectations of mid-single-digit % growth for the period. Shift to bulk segment will pressure margins. Accelerating rollout of infrastructure projects from next year onwards and a stagnant property market should see cement players (including INTP) experience stronger growth in the bulk segment than the more profitable bag cement segment. Weakening IDR leads to higher cash and financing cost. The benefits of lower coal and oil prices are largely offset by a weaker IDR against the USD, which inflates other cash cost components. Approximately 45% of INTP s cash cost is for energy, while c.70% of its COGS is transacted in USD. We expect SMGR s cash cost per tonne to increase by 5.2% CAGR, which would reduce EBITDA margins (see chart). Low capacity utilisation rate will cap SG&A expenses (as % of revenue). In anticipation of 7m tonnes of effective capacity coming online in 2015 and 2016, we expect INTP s utilisation rate to drop from 93% in 2014 to 76% in 2017F. In that period, SG&A expenses are expected to stay at % of revenue (vs 16% average in the past decade). 16,800 14,400 12,000 9,600 7,200 4,800 2, , , , , Rp bn 20,000 15,000 10,000 5, % 32% 32% 31% 31% 30% 30% 29% 29% 17,642 Domestic Sales Vol ('000 tones) 18,189 16,742 Domestic ASP/tonne (in Rp) EBITDA margin (%) Revenue Trend 17,614 Market share trend in domestic market 18, A 2014A 2015F 2016F 2017F 958, , ,162 1,006,477 1,036, A 2014A 2015F 2016F 2017F A 2014A 2015F 2016F 2017F 2013A 2014A 2015F 2016F 2017F Total Revenue Revenue Growth (%) (YoY) 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 28% FY15F FY16F FY17F Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 13

14 Company Guide Indocement Tunggal P. Balance Sheet: Strong balance sheet for future expansion. INTP s balance sheet has been impeccable with near-zero interest bearing debt since Strong operational cash flow generation and abundant cash position will allow INTP to self-finance its future capex. Share Price Drivers: Positive progress in nationwide infrastructure development. Good progress and faster infrastructure budget absorption should lift cement demand, and improve INTP s utilisation rate, and hence, profitability Rp 4,000.0 Leverage & Asset Turnover (x) 2013A 2014A 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure Cement sales. Monthly cement sales data released by the Indonesia Cement Association (ASI) is a leading indicator of INTP s stock price direction. 3, , , , ,500.0 High dividend yield. We expect INTP to continue pay high dividends, possibly offering c.5% yield annually. 1, A 2014A 2015F 2016F 2017F Key Risks: Further price control by government. The new government has surprised the market in early 2015 by instructing stateowned cement producers to cut cement price by 4-5% per bag. Given the competitive market, other producers have to follow suit or risked losing their market share. Further price regulation by government will negatively affected cement producers profitability. 20.0% 15.0% 10.0% 5.0% Capital Expenditure (-) ROE (%) Slower than expected much heralded infrastructure projects roll-out. Despite the gallant effort from the government to speed up the process, infrastructure development realization has been slower than what the streets lofty expectations. Slower execution will directly affect cement demand growth and subsequently negatively affecting INTP s utilisation and profitability. Competition intensifies in Java. INTP s dominance in Java (particularly West Java) could be under threat once the new players start production. Its lead in Java has been snatched by Semen Indonesia (SMGR IJ) since COMPANY BACKGROUND Indocement (INTP) is the most profitable cement producer (highest margins) in the sector. It sells cement under the Tiga Roda brand, arguably the most popular brand in Indonesia. Its sales volume is concentrated in Java (over 72%). It registers higher margins because of its centralised production facilities and premium pricing, and a profitable Ready Mix Cement (RMC) business. 0.0% 2013A 2014A 2015F 2016F 2017F 22.7 Forward PE Band (x) (x) Sep-11 Sep-12 Sep-13 Sep-14 PB Band (x) (x) Sep-11 Sep-12 Sep-13 Sep-14 Source: Company, DBS Vickers +2sd: 20.5x +1sd: 18.3x Avg: 16x 1sd: 13.7x 2sd: 11.5x +2sd: 4.53x +1sd: 4.11x Avg: 3.69x 1sd: 3.28x 2sd: 2.86x Page 14 ASIAN INSIGHTS VICKERS SECURITIES

15 Company Guide Indocement Tunggal P. Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F Domestic Sales Volume (m tonnes) Domestic ASP/tonne (Rp) 958, , ,162 1,006,477 1,036,671 EBITDA margin (%) Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Cement 17,046 18,293 16,541 17,918 19,618 Ready Mix Concrete 2,739 2,819 3,256 3,760 4,343 Aggregates Other Businesses (1,209) (1,251) (1,379) (1,572) (1,791) Growing RMC business Total 18,691 19,996 18,573 20,286 22,375 Operating profit (Rp bn) Cement 6,139 5,930 4,942 5,096 5,388 Ready Mix Concrete (86) Aggregates Other Businesses Total 6,064 5,975 5,030 5,310 5,636 Operating profit Margins Cement Ready Mix Concrete (3.1) Aggregates Other Businesses Total Income Statement (Rp bn) FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 18,691 19,996 18,573 20,286 22,375 Cost of Goods Sold (10,037) (10,910) (10,284) (11,316) (12,595) Gross Profit 8,655 9,087 8,290 8,969 9,780 Other Opng (Exp)/Inc (2,680) (3,233) (3,260) (3,659) (4,144) Operating Profit 5,975 5,854 5,030 5,310 5,636 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit 6,595 6,790 5,819 5,960 6,228 Tax (1,583) (1,516) (1,338) (1,371) (1,433) Minority Interest (2) (3) Preference Dividend Net Profit 5,010 5,271 4,481 4,590 4,796 Net Profit before Except. 5,010 5,271 4,481 4,590 4,796 EBITDA 6,785 6,732 5,940 6,304 6,732 Growth Revenue Gth (%) (7.1) EBITDA Gth (%) 2.5 (0.8) (11.8) Opg Profit Gth (%) 2.2 (2.0) (14.1) Net Profit Gth (%) (15.0) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) NM NM NM NM NM Expect margins to decline as competition intensify Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 15

16 Company Guide Indocement Tunggal P. Quarterly / Interim Income Statement (Rpbn) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Revenue 4,999 4,668 5,829 4,328 4,547 Cost of Goods Sold (2,764) (2,524) (3,090) (2,400) (2,481) Gross Profit 2,235 2,144 2,739 1,928 2,066 Other Oper. (Exp)/Inc (774) (786) (944) (695) (782) Operating Profit 1,461 1,358 1,795 1,233 1,285 Other Non Opg (Exp)/Inc (14) Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit 1,773 1,554 2,025 1,466 1,447 Tax (390) (348) (470) (320) (337) Minority Interest (2) Net Profit 1,380 1,206 1,555 1,146 1,110 Net profit bef Except. 1,380 1,206 1,555 1,146 1,110 EBITDA 1,684 1,571 2,026 1,465 1,285 1Q is the seasonally weakest quarter Growth Revenue Gth (%) 11.1 (6.6) 24.9 (25.8) 5.1 EBITDA Gth (%) 16.1 (6.7) 29.0 (27.7) (12.3) Opg Profit Gth (%) 17.9 (7.0) 32.2 (31.3) 4.2 Net Profit Gth (%) 22.2 (12.6) 28.9 (26.3) (3.2) Margins Gross Margins (%) Opg Margins (%) Net Profit Margins (%) Balance Sheet (Rp bn) FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 9,305 12,144 14,734 17,540 20,243 Invts in Associates & JVs Other LT Assets Cash & ST Invts 12,595 11,256 8,378 6,871 5,562 Inventory 1,474 1,666 1,570 1,728 1,923 Debtors 2,519 2,671 2,481 2,710 2,989 Other Current Assets Total Assets 26,607 28,885 28,290 30,025 31,956 ST Debt Creditor 1,375 1,695 1,632 1,808 2,023 Other Current Liab 1,365 1,565 1,521 1,628 1,759 LT Debt Other LT Liabilities Shareholder s Equity 22,947 24,785 24,298 25,751 27,334 Minority Interests Total Cap. & Liab. 26,607 28,885 28,290 30,025 31,956 Non-Cash Wkg. Capital 1,511 1,570 1,371 1,525 1,714 Net Cash/(Debt) 12,502 11,180 8,302 6,795 5,486 Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 2, , , , ,996.5 Z-Score (X) Near-zero debt since 2008 Strong net cash position Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 16

17 Company Guide Indocement Tunggal P. Cash Flow Statement (Rp bn) FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 6,595 6,790 5,819 5,960 6,228 Dep. & Amort ,096 Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. 160 (41) 199 (154) (189) Other Operating CF (563) (767) Net Operating CF 5,419 5,345 5,590 5,430 5,704 Capital Exp.(net) (2,005) (3,405) (3,500) (3,800) (3,800) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF (2,005) (3,396) (3,500) (3,800) (3,800) Div Paid (1,658) (3,313) (4,968) (3,137) (3,213) Chg in Gross Debt (49) (53) Capital Issues Other Financing CF Net Financing CF (1,707) (3,366) (4,968) (3,137) (3,213) Currency Adjustments Chg in Cash 2,121 (1,340) (2,878) (1,507) (1,309) Opg CFPS (Rp) 1,429 1,463 1,464 1,517 1,601 Free CFPS (Rp) Source: Company, DBS Vickers Strong operational cash flow to cover future capex Target Price & Ratings History Rp S.No. Date Closing Price Target Price Rating 1: 18 Feb FULLY VALUED 2: 14 Apr FULLY VALUED 3: 04 May FULLY VALUED 4: 27 May FULLY VALUED 5: 08 Jun FULLY VALUED 6: 10 Aug FULLY VALUED Sep-14 Jan-15 May-15 Sep-15 Note : Share price and Target price are adjusted for corporate actions. Source: DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 17

18 Indonesia Company Guide Semen Indonesia Edition 1 Version 1 Bloomberg: SMGR IJ Reuters: SMGR.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 29 Sep 2015 FULLY VALUED Last Traded Price: Rp9,150 (JCI : 4,120.50) Price Target : Rp7,800 (-15% downside) Potential Catalyst: Rebound in property presales, better execution from nationwide infrastructure development and lower energy price Where we differ: Having one of the lowest estimates in the street Analyst Edward Ariadi Tanuwijaya edward.tanuwijaya@id.dbsvickers.com Tjen San Chong tjensan@alliancedbs.com Price Relative 20, , , , , , ,480.0 Rp 6, Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Semen Indonesia (LHS) Relative JCI INDEX (RHS) Relative Index Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 26,987 25,698 27,877 30,603 EBITDA 8,195 6,643 7,116 7,640 Pre-tax Profit 7,091 5,583 5,883 6,332 Net Profit 5,566 4,294 4,530 4,880 Net Pft (Pre Ex.) 5,566 4,294 4,530 4,880 Net Pft (ex. BA gains) N/A N/A N/A N/A EPS (Rp) EPS Pre Ex. (Rp) EPS Gth (%) 4 (23) 5 8 EPS Gth Pre Ex (%) 4 (23) 5 8 Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) 4,070 4,418 4,892 5,410 PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) Earnings Rev (%): (23) (24) (23) Consensus EPS (Rp): ,075 Other Broker Recs: B: 18 S: 5 H: 12 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P THE VETERAN LEADER Maintain FULLY VALUED call with lower TP. We cut FY15/16/17F domestic sales volume assumptions by 8.4%/9.1%/8.6% after adjusting for YTD data. We also forecast weaker margins ahead because of intensifying competition for market share and higher COGS (weaker IDR; energy and material costs in USD). All in, we slashed FY15/16/17F earnings by 22.8%/23.8%/22.9%, resulting in this being one of the lowest estimates in the street. Buffer from Sumatra and Sulawesi. SMGR s 8M15 cement sales fell 4.4% y-o-y to 15.8m tonnes, with noticeable weakness in Java (-7% y-o-y) and Kalimantan (-6.3% y-o-y). However, Sumatra and Sulawesi cement sales held up (flat growth) and helped to support group earnings. Sumatra and Sulawesi accounted for 21% and 11% of SMGR s domestic cement sales by volume, respectively. Plans to expand to neighbouring countries. SMGR leads in the domestic cement market with 43% market share, given its long and strong presence in three key regions - Java, Sumatra and Sulawesi which account for c.85% of domestic cement sales. The three brands under SMGR command 38%, 43% and 64% market share in Java, Sumatra and Sulawesi, respectively. The planned entry into neighbouring countries will not happen so soon given better domestic margins. Valuation: Our target price of Rp7,800 is pegged to 10.2x FY16F EPS, at (-)1SD of 10-year mean forward PE (similar valuation it traded at in 2004 when utilisation level were depressed). Key Risks to Our View: Significant delays in new players greenfield cement plants. This would reduce competition in SMGR s strongholds, reduce the severity of competition from new players (better pricing power for incumbents), and lift utilisation rates. Recovery in property presales. We expect property presales to remain flat going forward after a 3-4 year boom ( ). But a sharp recovery in property presales would be upside risk to our cement volume sales assumptions. The property sector remains the major cement consumer in Indonesia. At A Glance Issued Capital (m shrs) 5,932 Mkt. Cap (Rpbn/US$m) 54,273 / 3,693 Major Shareholders Govt. of Indonesia (%) 60.0 Free Float (%) m Avg. Daily Val (US$m) 4.0 ICB Industry : Industrials / Construction & Materials ASIAN INSIGHTS VICKERS SECURITIES ed: SGC / sa: MA

19 Company Guide Semen Indonesia CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong presence in three regions to drive top line. SMGR leads in the domestic cement market with 43% market share, given its long and strong presence in three key regions - Java, Sumatra and Sulawesi which account for c.85% of domestic cement sales. We expect SMGR s sales volume to expand at 2.4% CAGR over F, a bearish stance considering that consensus is expecting mid-single-digit % growth for the period. This is in-line with our industry demand forecast, which expects modest growth (in line with Indonesia s real GDP growth) for the next three years as the country is entering normal growth state. Limited price upside because of competition. We do not expect cement prices to rise significantly going forward as incumbent players (including SMGR) would be forced to defend their market share from new players, which are willing to sacrifice margins to grab market share. The skewed supply-demand imbalance will also see utilisation rate of incumbent players remain depressed. We forecast only 1.3% CAGR in ASP/tonne between 2014 and 2017F; this is minimal compared to consensus expectations of mid-single-digit % growth for the period. Shift to bulk segment will pressure margins. Accelerating rollout of infrastructure projects from next year onwards and a stagnant property market should see cement players (including SMGR) experience stronger growth in the bulk segment than the more profitable bag cement segment. Weakening IDR leads to higher cash and financing cost. The benefits of lower coal and oil prices are largely offset by a weaker IDR against the USD, which inflates other cash cost components. Approximately 40% of INTP s cash cost is for energy, while c.65% of its COGS is transacted in USD. We expect SMGR s cash cost per tonne to increase by 3.9% CAGR, which would reduce EBITDA margins (see chart). In addition, exposure to foreign debt taken for expansion in Vietnam would also directly raise interest expense and reduce earnings by 0.5% if the IDR depreciated by another 10% against the USD. Low capacity utilisation rate will cap SG&A expenses (as % of revenue). In anticipation of 7m tonnes of effective capacity coming online in 2015 and 2016, we expect SMGR s utilisation rate to drop from 90% in 2014 to 78% in 2017F. In that period, SG&A expenses are expected to stay at 18% of revenue (vs 16.5% average in the past decade). 25,200 21,600 18,000 14,400 10,800 7,200 3, , , , , % 46% 45% 44% 43% Domestic Sales Volume 28,330 25,450 26,354 25,042 26, A 2014F 2015F 2016F 2017F Domestic ASP/tonne 947, , , , , A 2014F 2015F 2016F 2017F EBITDA margin A 2014F 2015F 2016F 2017F Revenue Trend Market share trend in domestic market 42% 41% 40% FY15F FY16F FY17F Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 19

20 Company Guide Semen Indonesia Balance Sheet: Exposure to USD debt. SMGR has exposure to foreign debt which it took on to expand into Vietnam in As of Jun 2015, foreign debt made up about one-third of SMGR s total long term debt. Further weakness in the IDR will inflate SMGR s debt position. Net cash position provides buffer for future expansion. SMGR has been in net cash position in the past decade (except in 2012 when it took on new loans for the TLCC acqusition), thanks to strong operational cash flow and good management of expansion capex. Share Price Drivers: Positive progress in nationwide infrastructure development. Good progress and faster infrastructure budget absorption should lift cement demand, and improve SMGR s utilisation rate, and hence, profitability. Cement sales. Monthly cement sales data released by the Indonesia Cement Association (ASI) is a leading indicator of SMGR s stock price direction. Expect lower dividend payout. SMGR has distributed 45-55% of net profits over Following recent talks of cutting dividends from state-owned enterprises (SOE) to spur infrastructure development, we expect lower dividend payouts and yields going forward. Key Risks: Further price control by government. The new government had surprised the market early this year by instructing stateowned cement producers to cut cement prices by 4-5% per bag. Further price regulations could hurt profitability. More delays in infrastructure projects. Despite gallant efforts by the government to speed up the process, project rollouts have been slower than the streets lofty expectations. Slower execution will directly affect cement demand growth, and consequently, hurt SMGR s utilisation and profitability. Leverage & Asset Turnover (x) A 2014F 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure Rp 4, , , , , , , A 2014F 2015F 2016F 2017F Capital Expenditure (-) ROE (%) 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2013A 2014F 2015F 2016F 2017F 24.6 Forward PE Band (x) (x) sd: 22.4x sd: 19.5x Avg: 16.6x sd: 13.6x sd: 10.7x Additional risks from overseas expansion. SMGR s vision to expand overseas presents potential country and political risks. SMGR has expanded into Vietnam (after acquiring stake in Thang Long Cement Company in 2013) and is eyeing neighbouring countries such Myanmar and Bangladesh. COMPANY BACKGROUND Semen Indonesia (SMGR) is the largest cement producer in Indonesia with over 40% market share. It has production facilities on three key islands (Java, Sumatra and Sulawesi) and solid distribution channels, which enables it to command high market shares throughout Indonesia. SMGR sells cement under three brands, Semen Gresik, Semen Padang and Semen Tonasa, which have strong brand equities in Java, Sumatra and Sulawesi, respectively. 8.6 Sep-11 Sep-12 Sep-13 Sep-14 PB Band (x) (x) Sep-11 Sep-12 Sep-13 Sep-14 Source: Company, DBS Vickers +2sd: 5.94x +1sd: 5.09x Avg: 4.24x 1sd: 3.39x 2sd: 2.54x Page 20 ASIAN INSIGHTS VICKERS SECURITIES

21 Company Guide Semen Indonesia Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F Domestic Sales Volume (m tonnes) Domestic ASP/tonne (Rp) 904, , , , ,659 EBITDA margin (%) Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Cement 24,152 26,335 25,047 27,194 29,885 Others Cement contributes 98% of SMGR s revenue Total 24,522 26,987 25,698 27,877 30,603 Operating profit (Rp bn) Cement 6,998 7,078 5,389 5,704 6,124 Others (26) (124) Total 6,972 6,954 5,486 5,806 6,232 Operating profit Margins Cement Others (7.0) (19.0) Total Income Statement (Rp bn) FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 24,501 26,987 25,698 27,877 30,603 Cost of Goods Sold (13,557) (15,388) (15,572) (17,014) (18,824) Gross Profit 10,944 11,599 10,126 10,863 11,778 Other Opng (Exp)/Inc (3,972) (4,645) (4,640) (5,057) (5,546) Operating Profit 6,972 6,954 5,486 5,806 6,232 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (177) (97) (13) (37) (18) Exceptional Gain/(Loss) Pre-tax Profit 6,920 7,091 5,583 5,883 6,332 Tax (1,566) (1,517) (1,284) (1,353) (1,456) Minority Interest 16 (8) (5) 0 5 Preference Dividend Net Profit 5,370 5,566 4,294 4,530 4,880 Net Profit before Except. 5,370 5,566 4,294 4,530 4,880 EBITDA 8,099 8,195 6,643 7,116 7,640 Growth Revenue Gth (%) (4.8) EBITDA Gth (%) (18.9) Opg Profit Gth (%) 14.1 (0.3) (21.1) Net Profit Gth (%) (22.8) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Expect margins to decline as competition intensify Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 21