Holcim Indonesia. Delivering much stronger-thanexpected. Global Markets Research. Company. 3 December Target Price Revision

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1 Company Global Markets Research Asia Indonesia Resources Construction Materials 3 December 27 Holcim Indonesia Reuters: SMCB.JK Bloomberg: SMCB IJ Exchange: JKT Ticker: SMCB Delivering much stronger-thanexpected profitability Rachman Koeswanto Research Analyst (+62) rachman.koeswanto@db.com Reiterate Buy rating Holcim Indonesia (SMCB) presents attractive investment opportunity. We expect the company to benefit greatly from robust cement demand outlook amid ample cement capacity (domestic utilization: <65% in 27F) coupled with a marked improvement on its profitability due to more profit-oriented marketing strategy, cost efficiencies and operating leverage. Strong financial support from its parent Holcim Ltd continues to show its strong support for its operation in Indonesia. It has agreed to be the main supporter for SMCB s debt refinancing. We believe this refinancing would provide necessary financial flexibility to finance its 3mn tons Greenfield project in a bid to address potential capacity shortage in Raising our EBIT forecasts by 13-36% for 27-9F We have upgraded our earnings forecasts mainly to reflect higher domestic sales volumes and export selling price, and lower production cost and operating expenses. SMCB s earnings are highly sensitive to its ability to improve margins EBIT will increase by 4.5% in 8F for every 1% improvement. Upgrading our target price to Rp2,1 from Rp1,45 Our new target price is based on a 1-year DCF valuation using a WACC rate of 12% (from 11%) and TG rate of 2%. Our WACC rate is based on a 9% risk-free rate, 8.1% cost of debt (from 7.7%), and 55% debt-to-capital employed (from 58%). The investment risk is its potential inability to raise cement price, improve brand equity and maintain/reduce its production cost (see pages 5-6 for more). Forecasts and ratios Year End Dec 31 25A 26A 27E 28E 29E Sales (IDRbn) 3,18 2,993 3,7 4,573 5,13 EBITDA (IDRbn) ,457 1,897 Reported NPAT (IDRbn) Reported EPS FD(IDR) DB EPS FD(IDR) OLD DB EPS FD(IDR) % Change -.%.% 4.3% 16.5% 19.4% DB EPS growth (%) PER (x) EV/EBITDA (x) DPS (net) (IDR) Yield (net) (%)..... estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Target Price Revision Buy Price at 3 Nov 27 (IDR) 1,65 Price target - 12mth (IDR) 2,1 52-week range (IDR) 1,93-54 Jakarta S.E. Composite Index 2, Key changes Price target 1,45. to 2, % Op prof margin (FYE) 11.3 to % Net profit (FYE) to % Price/price relative /5 3/6 6/6 9/6 12/6 3/7 6/7 9/7 Holcim Indonesia Jakarta S.E. Composi (Rebased) Performance (%) 1m 3m 12m Absolute Jakarta S.E. Composite Index Stock data Market cap (IDRbn) 12,644 Market cap (USDm) 1,349 Shares outstanding (m) 7,662.9 Major shareholders Holcim (77.33%) Free float (%) 23 Avg daily value traded (USDm) 2 Key indicators (FY1) ROE (%) 11.3 Net debt/equity (%) 145. Book value/share (IDR) 298 Price/book (x) 5.54 Net interest cover (x) 4.5 Operating profit margin (%) 13 /Hong Kong All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can access this IR at or call to request that a copy of the IR be sent to them. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1

2 Model updated: 3 November 27 Running the Numbers Asia Pacific Indonesia Construction Materials Holcim Indonesia Reuters: SMCB.JK Buy Bloomberg: SMCB IJ Price (3 Nov 7) IDR 1,65 Target price IDR 2,1 52-week Range IDR 54-1,93 Market Cap (bn) IDR 12,644 USD 1,349 Company Profile Holcim Indonesia (previously known as Semen Cibinong), established in 1971, is Indonesia's third largest cement producer. The company operates two cement plants with total installed annual capacity of 7.9mn tones located in Narogong (West Java) and Cilacap (Central Java). Holcim's cement products are sold under 'Serba Guna' brand in Java (Central Java, Jogyakarta and West Java as the main markets), Sumatera, Kalimantan and Nusa Tenggara. Price Performance Dec 5 May 6 Nov 6 Holcim Indonesia May 7 Oct 7 Margin Trends Jakart a S.E. Composit e Index (Rebased) E 8E 9E EBITDA Margin EBIT Margin Growth & Profitability Solvency E 8E 9E Sales growt h (LHS) ROE (RHS) E 8E 9E Net debt / equit y (LHS) Rachman Koeswanto Net int erest cover (RHS) rachman.koeswanto@db.com Fiscal year end 31-Dec E 28E 29E Financial Summary DB EPS (IDR) Reported EPS (IDR) DPS (IDR) BVPS (IDR) Weighted average shares (m) 7,663 7,663 7,663 7,663 7,663 7,663 Average market cap (IDRbn) 2,927 3,868 4,53 12,644 12,644 12,644 Enterprise value (IDRbn) 7,321 8,37 8,289 15,955 14,884 13,421 Valuation Metrics P/E (DB) (x) nm nm P/E (Reported) (x) nm nm P/BV (x) FCF Yield (%) nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) nm 58.5 nm Income Statement (IDRbn) Sales revenue 2,368 3,18 2,993 3,7 4,573 5,13 Gross profit 567 1,113 1,71 1,62 2,285 2,798 EBITDA ,457 1,897 Depreciation Amortisation EBIT ,23 1,462 Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax ,3 Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (IDRbn) Cash flow from operations ,125 1,479 Net Capex Free cash flow ,333 Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow ,515 Change in working capital Balance Sheet (IDRbn) Cash and other liquid assets ,283 2,799 Tangible fixed assets 6,394 6,86 5,96 5,616 5,325 5,35 Goodwill/intangible assets Associates/investments Other assets ,35 1,21 1,286 Total assets 7,52 7,324 7,66 7,44 7,89 9,12 Interest bearing debt 4,684 4,77 4,47 3,74 3,524 3,576 Other liabilities ,55 1,363 1,866 Total liabilities 5,367 5,482 4,967 4,759 4,887 5,441 Shareholders' equity 2,154 1,842 2,99 2,284 2,922 3,679 Minorities Total shareholders' equity 2,154 1,842 2,99 2,284 2,922 3,679 Net debt 4,395 4,53 3,76 3,312 2, Key Company Metrics Sales growth (%) DB EPS growth (%) na 37.3 na EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) nm nm.... ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) nm Source: Company data, Deutsche Bank estimates /Hong Kong Page 2

3 Stronger-than-expected profitability Lower production cost and operating expense The profitability of Holcim Indonesia (SMCB) has been stronger-than-expected following greater efficiencies and operating leverage since the beginning of this year. Notwithstanding rising energy costs, it was able to lower its production cost per ton by 1% to Rp354,644/ton in 9M7 owing largely to a 26% increase in domestic sales volumes (normalization in sales after the change in marketing strategy and branding, and cement demand recovery in Java) and cost efficiency measures at its distribution and workforce. At the same time, higher domestic sales volumes enabled the company to enjoy operating leverage as shown in Figure 2. Figure 1: Holcim: production cost Figure 2: Holcim: operating leverage Production cost (Rp '/ton) Production cost (YoY) 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 8% 6% 4% 2% % -2% -4% Topline (Rp bn) G&A (% of sales) Selling (% of sales) 1,25 2% 1, 15% 75 1% 5 5% 25 % 2Q5 3Q5 4Q5 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 Overall, we have cut our production cost per ton by 2% to Rp365k/ton in 27F and Rp363k/ton in 28F, and 3% to Rp365k/ton in 29F. Additionally, we have lowered our Operating Expense margin by 2.2ppt to 19.1% in 27F, 3.2ppt to 18.1% in 28F, and 3.7ppt to 17.7% in 29F. Please refer to Figure 5 for details on these revisions. Strong financial support from its parent Much greater financial flexibility from this refinancing SMCB will seek minority shareholders' approval on 18 Dec 7 for its refinancing plan. We believe this refinancing plan is a part of its effort to proceed with its 3mn tons Greenfield project (estimated investment cost of US$3mn) next year in a bid to address potential capacity constraint in owing to a strong demand. Figure 3: Debt refinancing program US$ mn Current Refinancing Tranche A Tranche B Cash Parent Rp Bank Tranche B Outstanding debts Interest 7% 15% % 7% 9% 15% LIBOR 6-month 5% % % 5% % % Margin 2% % % 2% % % Maturity Feb Collateral Yes Yes n.a. No No No Negative covenants Yes Yes n.a. No No No Dividend Yes Yes n.a. No No No New loans Yes Yes n.a. No No No New investments Yes Yes n.a. No No No Asset sale Yes Yes n.a. No No No /Hong Kong Page 3

4 Terminating US$215mn Tranche A loan with internal cash, parent new loan, and Rupiah bank loan Under this plan, SMCB will repay its Tranche A (external parties) loan totaling US$215mn (as of Nov 7) using 1) internal cash: US$2mn, 2) parent new loan: US$135mn, and 3) Rupiah bank loan: US$6mn. The interest rate charges on these loans are as follows: US$ loan: LIBOR + 2% margin, and Rupiah bank loan: 9.25%. Meanwhile, on Tranche B (parent) loan, there are no changes in the maturity (Nov 214) and interest rate (15% p.a. starting Aug 28). The interest charges remain relatively unchanged after this refinancing, however, we expect the company would have much greater financial flexibility particularly to execute its capacity expansion plan. These financial flexibilities include 1) removal of negative covenants on dividend, new loans, new investments and asset sale, 2) release on company s assets, which are used as collateral, 3) extension (2-year) on the existing Tranche A loan repayment, and 4) loan diversification (15% of total loans will be in rupiah after the refinancing). Earnings revisions Upgrading EBIT by 13-36% for 27-9F We have increased our earnings forecasts to reflect higher domestic sales volumes and export selling price, and lower production cost and operating expenses. We have lowered our revenue forecast by 2% to Rp3.7tn in 27F before increasing it by 3% to Rp4.6tn in 28F, and 2% to Rp5.1tn in 29F. Supported by lower production cost and operating leverage, we have raised our EBIT margin by 2ppt to 13% in 27F, 5ppt to 22% in 28F, and 6ppt to 29% in 29F. Finally, we have increased our bottom line forecast by 4% to Rp248bn 27F, 16% to Rp65bn in 28F, and 19% to Rp721bn in 29F. Figure 4: Earnings revision Rp bn 27F 28F 29F Prev Revision Chg. (%) Prev Revision Chg. (%) Prev Revision Chg. (%) Sales 3,785 3,7-2% 4,427 4,573 3% 5,1 5,13 2% EBIT % 754 1,23 36% 1,129 1,462 3% EBIT margin (%) 11% 13% 2% 17% 22% 5% 23% 29% 6% Net Profit % % % Figure 5: Change in our main assumptions 27F 28F 29F Prev Revision Chg. (%) Prev Revision Chg. (%) Prev Revision Chg. (%) Utilization rate 87% 87% % 93% 95% 2% 95% 95% % Sales volumes (mn tons) % % % Domestic % % % Export % % % Selling price (Rp/ton) 478, ,84-2% 523, ,869 1% 58, ,244 2% Domestic 559, , -3% 61, ,5-1% 647, ,64-1% Export 27,3 27,3 % 27, 315, 17% 276,75 322,875 17% Production cost per ton 371, ,424-2% 371, ,668-2% 374, ,155-3% Labor 29,98 27,934-4% 29,826 28,214-5% 3,571 28,496-7% Depreciation 65,463 62,17-5% 61,492 56,995-7% 6,447 57,197-5% Factory overhead & raw material 276, ,972-4% 28, ,959-5% 283, ,961-5% OPEX 21.3% 19.1% -2.2% 21.3% 18.1% -3.2% 21.3% 17.7% -3.7% Selling & Distribution Exp 13.3% 12.4% -1.% 13.3% 12.1% -1.2% 13.3% 11.7% -1.7% G&A Exp 8.% 6.8% -1.3% 8.% 6.% -2.% 8.% 6.% -2.% /Hong Kong Page 4

5 Valuation and risks SMCB continues to show its strong share performance (+146% YTD) outperforming the market by 65% YTD. We attribute this outperformance to sharp earnings recovery following improvement in pricing flexibility and profitability. We expect this condition to persist in the light of robust cement demand outlook. The stock is trading at US$29/ton and 1.2x EV/EBITDA in 28F. Figure 6: Share price performance vs. JCI Figure 7: Holcim s DCF valuation 1% 8% 6% 4% INTP SMCB SMGR Rp bn New Previous Chg Enterprise value 18,289 14,44 27% Net debt (2,241) (3,329) -33% Equity value 16,49 11,75 45% No of shares (mn) 7,663 7,663 % Equity value per share (Rp/share) 2,94 1,445 45% 2% % -2% 1-Jan 26-Jan 2-Feb 17-Mar 11-Apr 6-May 31-May 25-Jun 2-Jul 14-Aug 8-Sep 3-Oct 28-Oct 22-Nov WACC rate 12% 12% % Risk free rate 9% 9% % Cost of debt 7.9% 8.1% % Debt-to-capital employed 55% 54% 1% Terminal growth 2% 2% % ; Bloomberg Raising target price to Rp2,1 (from Rp1,45) We have increased our target price to Rp2,1 (from Rp1,45) mainly due to our earnings upgrades. Our target price is based on a 1-year DCF valuation using a WACC rate of 12% (from 12%) and terminal growth rate of 2% (from 2%). The WACC rate is derived from a riskfree rate of 9% (from 9%), a cost of debt of 8.1% (from 8.1%), and debt-to-capital employed of 54% (from 55%). At this target price, the stock is trading at US$258/ton in 28F before falling to US$231/ton in 29F. Figure 8: Regional valuation comparison Stock Rating Price* Target Market Cap. EV/ton (US$) EV/EBITDA (x) Code 3-Nov-7 Price (US$ mn) 28F Implied 28F Implied Indocement INTP.JK BUY 7,7 8,25 3, Holcim Indonesia SMCB.JK BUY 1,65 2,1 1, Semen Gresik SMGR.JK BUY 5,95 5,65 3, Associated Cement Co.** ACC.BO BUY 1, ,35. 4, Gujarat Ambuja** ACEM.BO BUY , Ultratech CEMCO** ULTC.BO BUY ,14. 3, India Cement** ICMN.BO BUY , Shree Cement** SHCM.BO BUY 1, ,1. 1, Anhui Conch Cement** 914.HK BUY , China Building Materials** 3323.HK BUY , Holcim Philippines** HLCM.PS BUY , Siam City Cement** SCCC.BK HOLD , Taiwan Cement** 111.TW BUY , Asia Cement** 112.TW BUY , Regional Average Note: * Local currency; ** These companies are not covered by the author of this report. Detail coverage, ratings, and target prices may be found on /Hong Kong Page 5

6 The main investment risk is Holcim s potential inability to raise cement prices, improve brand equity, and maintain/reduce its production cost particularly in light of the rising energy prices (energy costs account for 47% of production costs). /Hong Kong Page 6

7 Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Ticker Recent price* Disclosure Holcim Indonesia SMCB.JK 165. (IDR) 3 Nov 7 6,7,8,14 *Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. 14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Rachman Koeswanto /Hong Kong Page 7

8 Historical recommendations and target price: Holcim Indonesia (SMCB.JK) (as of 11/3/27) 2,5. Previous Recommendations Security Price 2,. 1,5. 1, Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating 5. *New Recommendation Structure as of September 9, 22. Dec 5 Mar 6 Jun 6 Sep 6 Dec 6 Mar 7 Jun 7 Sep 7 Date 1. 5/1/26: Hold, Target Price Change IDR /2/26: Hold, Target Price Change IDR /5/26: Hold, Target Price Change IDR /6/26: Upgrade to Buy, IDR66. Equity rating key 5. 22/2/27: Downgrade to Hold, Target Price Change IDR /6/27: Hold, Target Price Change IDR /1/27: Upgrade to Buy, Target Price Change IDR1,45. Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield ), we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 27 were: Buy: Expected total return (including dividends) of 1% or more over a 12-month period Hold: Expected total return (including dividends) between -1% and 1% over a 12-month period Sell: Expected total return (including dividends) of - 1% or worse over a 12-month period % 28% 12% 12% 13% 7% Buy Hold Sell Companies Covered Cos. w/ Banking Relationship Asia-Pacific Universe /Hong Kong Page 8

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