December 17, 2010 SECURITIES

Cement Sector RESEARCH REPORT

Equity Cement

JCI VS MANUFACTURES Too good to be ignored

4000 950

3800 JCI Manufacture 900

3600 850 Too good to be ignored - Three listed cement companies (PT Semen
3400
800 Gresik, PT Indocement Tunggal Prakarsa and PT Holcim Indonesia) have
750
3200
700
an average EBITDA margin and ROE of 34.8% and 31.4% respectively in
3000
650 FY 2009, very attractive, compare to average peers in regional (EBITDA
2800
600
2600
margin 25.8% and ROE 14.6%). These will attract new entrant to the in-
550
2400 500 dustry, as we read in the media recently that some companies from China,
2200 450 India and Thailand plan to build new plant in Indonesia. As a beginning,
0
10

0
09

10

10

10

10
10
0

l-1
-1

n-1

the competitors plan to start with capacity about 2 million ton/year. But we
r-1
c-

p-

v-

c-
n-

b-

g-
Ju
ar
De

No

De
Ja

Ju
Fe

Ap

Se
Au
M

Source : Bloomberg believe it will need at least 3 years to materialize and it will make no major
changes in the market competition.

Oligopoly - 3 companies have almost 90% of market shares–

Since 2001, three cement companies have more than 88% of domestic
market share. In FY 2009, SMGR, INTP and SMCB have market share of
44.7%, 30.2% and 13.8% respectively. In terms of capacity, the 3 compa-
nies have more than 90% of national capacity production. We believe that
the market structure will not change in the next 5 years.

Favorable supply and demand structure - To fulfill higher demand

in the future, some cement companies have planned to upgrade and build
cement plant. We estimate the domestic production capacity will increase
from 46.5 million ton/year in 2009 to 62.6 million ton/year (or +34%) in
2014. On the demand side, we conservatively expect that cement con-
sumption will grow by 6-9% (historically 1.2-1.5 times of GDP growth).
Hence, the national utilization rate will keep at high level, above 80% until
2014. This favorable supply and demand structure will continually put ce-
ment companies in a good bargaining power.

High entry barrier - We believe that there are some major entry barri-
ers for new players in the cement industry, especially in Indonesia, such
as: 1) brand recognition (more than 80% of sales volume was in bag,
which is mostly retail market), 2) plant location (near to customers with a
good infrastructure and enough limestone reserve), and 3) distribution
network (Indonesia consists of many islands and considering that cement
is bulky product).

Sonny John
Phone : (62-21) 255 74 739
Email : johnsonny@ciptadana.com

Cement Sector December 17, 2010

PT. CIPTADANA SECURITIES , expressly disclaim any and all liability for representations or warranties expressed or implied, contained herein or omissions therefrom or for any loss howsoever arising from any use of this document or its contents or otherwise
arising in connection therewith. Opinions expressed in this report are our present views and are subject to change without notice.
 SECURITIES

Maintaining high margin - Historically, the 3-listed cement companies have

proven their excellent EBITDA margin. SMGR, INTP and SMCB have generated
EBITDA margin of 33.1%, 40.3% and 31.0% in FY 2009 respectively. In the long
term, we believe that the cement companies could maintain their high EBITDA mar-
gin by: 1) raising selling price, 2) lowering clinker ratio, 3) efficiencies in production
process, such as using medium to low rank coal, new coal mill, alternative energy,
etc., and 4) economic of scale.

Upside risk from infrastructure and property sector - To attract investors,

the government has moved in the right direction by trying to loosen the regulations
in infrastructure and property sector. The issuance of land acquisition law will play
an important rule in changing the investment climate in infrastructure sector. In the
property sector, the government has increased the subsidy for middle-to-low seg-
ment for purchasing their first home and planned to allow foreigners to buy apart-
ments. Lower cost of fund also supports the expansion in infrastructure and prop-
erty sector.

Overweight - We initiate the cement sector and recommend OVERWEIGHT, as

the industry looks very attractive, high entry barrier, high future demand of property
& infrastructure. On average, the share prices of 3 listed cement companies have
outperformed against the Jakarta Composite Index in the 4 years. Our top picks are
SMGR and INTP, with target price of Rp11,000/sh (upside potential of 17%) and
Rp19,000/sh (+19%) respectively. Risk to our call: accelerating inflation rate, soar-
ing energy cost and Rupiah depreciation.

Figure1. Valuation comparison, as of Dec 16, 2010

P/E'11 EV/EBITDA'11E
Ytl Cement 9.0 4.0
Lafarge Malayan Cement 15.3 9.8
Tasek Corp 8.9 3.3
Siam Cement 14.8 9.3
SMGR 14.2 8.6
INTP 14.2 9.2
SMCB 15.6 8.6
Average 13.1 7.5
Source : Ciptadana estimates & Bloomberg

Cement Sector December 17, 2010

 SECURITIES

Too good to be ignored - Three listed cement companies (PT Semen Gresik,
PT Indocement Tunggal Prakarsa and PT Holcim Indonesia) have an average
EBITDA margin and ROE of 34.8% and 31.4% respectively in FY 2009, very attrac-
tive, compare to average peers in regional (EBITDA margin 25.8% and ROE
14.6%). These will attract new entrant to the industry, as we read in the media re-
cently that some companies from China, India and Thailand plan to build new plant
in Indonesia. As a beginning, the competitors plan to start with capacity about 2
million ton/year. But we believe it will need at least 3 years to materialize and it will
make no major changes in the market competition.

Figure2. EBITDA & ROE – attractive

ROE EBITDA
FY09 3Q10* FY09 3Q10
SMGR IJ 36.4% 29.7% 33.1% 34.4%
INTP IJ 28.6% 25.9% 40.3% 42.4%
SMCB IJ 29.3% 21.0% 31.0% 29.6%
Average 31.4% 25.5% 34.8% 35.5%
YTLC MK 15.6% 15.7% 25.6% 28.2%
LMC MK 13.2% 9.1% 23.8% 21.7%
TC MK 7.6% 9.7% 23.9% N/A
SCCC TB 18.3% 17.8% 24.5% 22.9%
HLCM PM 18.2% 25.5% 31.1% 34.6%
Average 14.6% 15.6% 25.8% 26.9%
* annualized
Source: Company & Bloomberg

Figure3. Cement consumption per capita (2008) – the lowest in Asia

Indonesia

Malaysia

Brunei

China

Singapura

Korsel

0 200 400 600 800 1000 1200

Source: ASI, Bloomberg & Ciptadana calculation

Cement Sector December 17, 2010

 SECURITIES

Oligopoly – 3 companies have almost 90% of market share. Since 2001,

three cement companies have more than 88% of domestic market share. In FY
2009, SMGR, INTP and SMCB have market share of 44.7%, 30.2% and 13.8% re-
spectively. The other producers are Semen Andalas (production capacity of 1.5
million ton/year, will be re-operated in 2011), Semen Baturaja (1.25 million
ton/year), Semen Bosowa (1.8 million ton/year) and Semen Kujang (0.57 million
ton/year, debt restructuring). In terms of capacity, the 3 companies have more than
90% of national capacity production. We believe that the market structure will not
change in the next 5 years.

Figure4. Domestic market share

Market Share
100%
9.3% 11.4% 11.3% 10.5% 9.8% 10.3% 10.2% 10.5% 11.2% 12.3%
14.1% 14.9%
90%
13.6% 15.2% 12.7% 14.6%
13.9% 15.1% 14.1% 13.8% 13.6%
80% 13.7% 15.8%
13.9%

70%

30.6%
60% 27.5% 34.0% 30.1% 29.7% 30.9% 31.7% 30.2% 31.0%
28.1% 34.0% 29.5%

50%

40%

30%

44.7% 43.4% 44.3% 45.3% 46.4% 44.4% 43.7% 44.7%

20% 43.1% 43.0% 40.7% 43.1%

10%

0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 11M 10

SMGR INTP SMCB Others

Source: ASI

Cement Sector December 17, 2010

 SECURITIES

Figure5. Cement plants in Indonesia

Source: SMGR presentation

In August 2010, anti monopoly body (KPPU) has announced that cartel allegations
in the cement industry was not proven. KPPU have suggested 3 recommendations
to the government of Indonesia, as follows:
1. liquidating of Asosiasi Semen Indonesia (ASI)
2. setting highest retail price (harga eceran tertinggi - HET)
3. maintaining sufficient supply of cement in all parts of Indonesia

Favorable supply and demand structure - To fulfill higher demand in the

future, some cement companies have planned to upgrade and build cement plant.
We estimate the domestic production capacity will increase from 46.5 million
ton/year in 2009 to 62.6 million ton/year (or +34%) in 2014. On the demand side,
we conservatively expect that cement consumption will grow by 6-9% (historically
1.2-1.5 times of GDP growth). Hence, the national utilization rate will keep at high
level, above 80% until 2014. This favorable supply and demand structure will con-
tinually put cement companies in a good bargaining power.

Cement Sector December 17, 2010

 SECURITIES

Figure6. High utilization rate

70 90.0%

60 85.0%

80.0%
50
75.0%
40
70.0%
30
65.0%
20
60.0%
10 55.0%

- 50.0%

2010E

2011E

2012E

2013E

2014E
2003

2004

2005

2006

2007

2008

2009
mln ton

Capacity Demand Utilization

Source: ASI & Ciptadana estimates

High entry barrier. We believe that there are some major entry barriers for new
players in the cement industry, especially in Indonesia, such as:
1. Brand recognition. More than 80% of sales volume was in bag, which is mostly
retail market. If the infrastructure projects were executed, the bag cement is esti-
mated to contribute 65-75% of total domestic consumptions. Hence, we expect
strong brand recognition will continually play an important role in cement indus-
try.
2. Plant location (near to customers with a good infrastructure and enough lime-
stone reserve).
3. Distribution network (Indonesia consists of many islands and considering that
cement is bulky product).

Maintaining high margin. Historically, the 3-listed cement companies have

proven their excellent EBITDA margin. SMGR, INTP and SMCB have generated
EBITDA margin of 33.1%, 40.3% and 31.0% in FY 2009 respectively. In the long
term, we believe that the cement companies could maintain their high EBITDA mar-
gin by:
1. Raising selling price. EBITDA margin have tend to decline in the last several
quarters, due to flattening average selling price. We believe that higher input
cost, especially energy (about 40% of production cost), will be passed-through
to customers by raising selling price in 2011.
2. Lowering clinker ratio. Cement producers gradually introduce portland-
composite cement (PCC) to replace ordinary portland cement (OPC), that have
higher clinker content (clinker is heated with temperature up to 1,400 0C, so
need much energy). Hence, by substituting clinker with other materials, the cost
of production/ton will be lower and the margin will be higher.
3. Efficiencies in production process, such as using medium to low rank coal, new
coal mill, alternative energy, etc.
4. Economic of scale.

Cement Sector December 17, 2010

 SECURITIES

Figure7. EBITDA margin is stable

40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10

Source: Company

Figure8. Flattening average selling price

850000

800000

750000

700000

650000

600000

550000

500000
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10
SMGR INTP SMCB

Source: Company

Cement Sector December 17, 2010

 SECURITIES

Upside risk from infrastructure and property sector - To attract investors, the
government has moved in the right direction by trying to loosen the regulations in
infrastructure and property sector. The issuance of land acquisition law will play an
important rule in changing the investment climate in infrastructure sector. In the
property sector, the government has increased the subsidy for middle-to-low seg-
ment for purchasing their first home and planned to allow foreigners to buy apart-
ments. Lower cost of fund also supports the expansion in infrastructure and prop-
erty sector.

Accelerating inflation rate – short term pain. Central Bureau of Statistics

(BPS) have released that inflation rate in November 2010 reached up to 0.60%
MoM and 6.33% YoY, rose from 0.06% MoM and 5.67% YoY in October. The sig-
nificant increased in inflation was mainly by higher food and commodity prices. In
year-on-year basis, the November’s inflation rate is the highest in last 19 months.
Meanwhile, the government of Indonesia also plans to implement the using of non-
subsidized fuel for private cars in Greater Jakarta that we estimate it will push up
the consumer price index (CPI).

Raising interest rates from some central banks also put another pressure to Bank
Indonesia to follow the action. Higher inflation and interest rate potentially decrease
the purchasing power and property sales (more than 70% using mortgage), but it
will be offset by higher income from commodity sector. We believe it will affect the
cement consumption in the short term, but in the long term it will remain robust,
supported by economic growth, strong demand from housing sector and infrastruc-
ture projects.

Figure9. Inflation rate (YoY)

Source: Bloomberg

Cement Sector December 17, 2010

 SECURITIES

Weak number in November, mainly by rain and eruption. In November 2010, the cement
consumption was 3.53 million ton, down by 7.8% MoM (October 3.83 million). Hence, total
domestic consumption was 36.87 million ton in 11M 2010, increased by 6.6% YoY, inline with
our assumption of 6%. Java (contributes 54% of national demand) recorded the weakest
number (-13.0% MoM vs national -7.8%), especially Central Java (-21% MoM) and Yogya-
karta (-40% MoM), as the Merapi volcano erupted in late October 2010.

Figure10. Cement consumption in 11M 2010

11M 10 11M 09 Chg
Sumatera 8,738,763 7,940,794 10.0%
Jawa 19,767,310 18,980,906 4.1%
Kalimantan 2,615,710 2,214,885 18.1%
Sulawesi 2,729,570 2,748,466 -0.7%
Nusa Tenggara 2,189,753 1,954,407 12.0%
East Indonesia 833,703 748,612 11.4%
Total 36,874,809 34,588,071 6.6%

Figure11. Cement consumption (MoM)

Nov 10 Oct 10 Chg
Sumatera 909,725 855,271 6.4%
Jawa 1,837,340 2,112,608 -13.0%
Kalimantan 243,409 255,437 -4.7%
Sulawesi 263,098 292,927 -10.2%
Nusa Tenggara 207,996 238,288 -12.7%
Indonesia Timur 70,400 77,621 -9.3%
Total 3,531,967 3,832,151 -7.8%
Source: ASI

Overweight - We initiate the cement sector and recommend OVERWEIGHT, as the

industry looks attractive, high entry barrier, high future demand of property & infra-
structure. On average, the share prices of 3 listed cement companies have outper-
formed against the Jakarta Composite Index in the xx years. Our top picks are
SMGR and INTP, with target price of Rp11,000/sh (upside potential of 17%) and
Rp19,000/sh (+19%) respectively. Risk to our call: accelerating inflation rate, soaring
energy cost and Rupiah depreciation.

Figure12. Cement sector have outperformed against JCI in last 4 years

250%
SMGR INTP SMCB Average JCI
200%

150%

100%

50%

0%
2003 2004 2005 2006 2007 2008 2009
-50%

-100%
Source: Bloomberg
9

Cement Sector December 17, 2010

 PT Semen Gresik (SMGR) BUY
12-Month Price Target: Rp 11,000/shr SECURITIES

JCI vs SMGR Removing the constraint

4000 10500

3800 JCI SMGR

•
10000
3600
9500
Two new plants are on schedule. As of mid November, two new plants
3400
9000 (in Tuban and Tonasa) have progressed on schedule. Tuban IV has
3200

3000
8500
completed 55.2% of the project (vs planning 56.9%) while Tonasa V
8000
2800
has completed 62.9% of the project (vs planning 62.4%). The invest-
7500
2600

2400 7000 ment costs are expected to be around US$303 million for Tuban IV and
2200 6500 US$289 million for Tonasa V, in line with capex plan. The two new
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Sep-10 Nov-10 Dec-10
plants will add production capacity of 5 million ton/year to SMGR group
Source : Bloomberg in early 2012.

• Upgrading plants. SMGR also continuously upgrade some existing

Current Price (12/16/2010) : 9,250
plants to handle the capacity constraints in the short term. SMGR have
52 Wk High (10/04/2010) : 10,350
successfully done some modifications/improvements, such as: modifi-
52 Wk Low (12/21/2010) : 7,250
YTD Change : 1,700 cations in pre-heater, installing dual driver, enlarging the cooler’s ca-
YTD % Change : 22.52% pacity, renewing coal mill with bigger capacity, etc. SMGR have suc-
Shares outstanding (Mn) : 5,931.5 M cessfully increased the production capacity of Tuban I from 7,500
Market capitalization ( IDR Bn) : 54,866.5 B ton/day in year end 2009 to 9,000 ton/day currently.
Free Floating (Mn) : 2,905.8 M
Source : Bloomberg • Deserve for re-rating, SMGR’s share prices have lagged in 2009 com-
pare to INTP (81% vs INTP 198%). SMGR’s valuation also traded at
Selected Financial discount compare to INTP in last few years, mainly by SMGR’s capacity
Rp bn 2008 2009 2010F 2011F 2012F constraints. The average rolling P/E since 2005 was 10.2x (vs INTP
Sales 12,210 14,388 14,491 16,860 20,437 15.2x) with highest rolling P/E was 14.9x (vs INTP 27.4x). But as the
EBITDA 3,865 4,768 5,043 5,944 7,072
new capacity will be delivered in early 2012, we believe that SMGR’s
Net Profit 2,524 3,327 3,424 3,864 4,682
valuation deserves for re-rating and reduces the discount with INTP.

EPS (Rp) 425 566 577 651 789

• Valuation. SMGR is one of our top pick, as we believe that the manage-
EPS Growth (%) 42% 33% 2% 13% 21%
ments have executed the upgrading program and cost efficiency very
DPS (Rp) 150 270 280 289 326
Dividend Yield
well. We derive our valuation using DCF method (assuming WACC
1.4% 2.5% 2.5% 2.6% 3.0%
(%) 12.9%), with target price of Rp11,000/share, provide upside potential
ROAA (%) 26% 28% 23% 22% 22%
19% from current price. This target price reflects P/E’11E 16.9x with
ROAE (%) 34% 36% 31% 30% 30% excellent earning growth of 18.7% CAGR from 2010 to 2015. The reali-
P/E (x) 21.7 16.3 16.0 14.2 11.7 zation of the acquisition plan will be an upside risk to our valuation.
P/BV (x) 6.8 5.4 4.6 3.9 3.3 BUY
EV/EBITDA (x) 13.2 10.4 10.2 8.6 6.5 Figure1. Production capacity (in million ton)

Source: Company & Ciptadana estimates 30

Capacity Upgrading New plant 27,0
24,0 1.5
25 1.5
20,5
19,5 3.5
20 19,0 1
18,0 0.5
17.1 1
0.9
15

10

0
2007 2008 2009 2010 2011F 2012F 2013F
Source: Company
10

Cement Sector December 17, 2010

 SECURITIES

Figure2. Production capacity (in million ton)

Upgrading clinker capacity Note Timeline
- Tuban I from 7,500 tpd to 9,000 tpd Finished
- Tuban II from 7,800 tpd to 8,200 tpd Finished
- Tuban III from 7,800 tpd to 8,200 tpd Finished

New coal mill from 50 tph to 80 tph Des 2010

Vertical cement mill 250 tph 2010-2012

Source: Company

Figure3. P/E band SMGR

12000
17 x

10000 15 x

13 x
8000
11 x
6000 9x

4000

2000

0
Jul-05

Mar-06

May-08

Jul-09

Mar-10
Jul-10
Jun-06

Jun-07
Jan-04
Apr-04
Aug-04

Apr-05

Jan-08

Aug-08

Apr-09
Dec-04

Nov-05

Oct-06
Feb-07

Sep-07

Dec-08

Nov-09

Oct-10
Source: Company & Ciptadana estimates

Figure4. Spread P/E - SMGR’s valuation is getting closer to INTP

20

15

10

-5
Jul-06

May-07

Mar-08

Jul-09
Jan-06
Apr-06

Aug-07

Jun-08

Aug-10
Nov-06
Feb-07

Nov-07

Sep-08

Apr-09

Jan-10
Dec-08

Oct-09

Apr-10

Nov-10

Source: Company & Ciptadana estimates

11

Cement Sector December 17, 2010

 SECURITIES

Financial Ratios
Income Statement
Rp bn 2008 2009 2010F 2011F 2012F
Revenue 12,210 14,388 14,491 16,860 20,437
Cost of good sold 6,855 7,614 7,681 9,058 11,187
Gross profit 5,355 6,774 6,811 7,802 9,251
Operating expenses 1,967 2,432 2,391 2,613 2,963
Operating profit 3,387 4,343 4,419 5,189 6,287
EBITDA 3,865 4,768 5,043 5,944 7,072
Other income (exp) 212 338 170 (4) (5)
Pretax profit 3,590 4,655 4,594 5,185 6,283
Tax (1,046) (1,302) (1,148) (1,296) (1,571)
Net profit 2,524 3,327 3,424 3,864 4,682
Balance Sheet
Yr-end Dec (Rp bn) 2008 2009 2010F 2011F 2012F
Cash & ST Investment 3,836 5,283 5,168 6,168 8,945
Account Receivable 1,519 1,428 1,450 1,687 2,045
Others 1,728 1,496 1,497 1,765 2,180
Total Current Assets 7,083 8,207 8,115 9,620 13,171
Fixed Assets 3,309 4,014 7,365 9,238 9,056
Other Assets 211 730 751 774 799
Total Assets 10,603 12,951 16,231 19,632 23,026
Current Liabilities 2,092 2,295 2,248 2,624 5,765
Non-current Liabilities 441 459 2,025 2,898 400
Total Liabilities 2,533 2,754 4,273 5,522 6,165
Total Equity 8,070 10,198 11,958 14,110 16,860
Ratio
2008 2009 2010F 2011F 2012F
Gross margin (%) 41.1% 48.3% 50.7% 51.6% 53.3%
Operating margin (%) 25.2% 34.9% 37.1% 38.0% 39.7%
Net margin (%) 17.8% 26.0% 29.4% 30.4% 32.2%
Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash
Debt to Equity (%) 10.6% 2.2% 0.0% 0.0% 0.0%
Assumptions
Sales volume (mln ton) 2008 2009 2010F 2011F 2012F
Domestic 12.1 11.6 12.6 14.2 15.4
Export cement 0.1 0.0 - - -
Export clinker 2.2 1.5 0.9 0.9 0.9
National demand (YoY) 11.4% 0.7% 6.0% 9.0% 7.0%
Domestic ASP (YoY) 24.6% 14.2% 0.0% 7.0% 5.0%

12
Source: Company & Ciptadana estimates

Cement Sector December 17, 2010

 PT Indocement T.P (INTP)
BUY
12-Month Price Target: Rp 19,000/shr
SECURITIES

JCI vs INTP Ample capacity

4000 20000

•
3800 JCI INTP 19000

3600 18000 Ample capacity. Currently INTP has production capacity of 18.6 million
17000
3400 ton/year, compare to SMGR (19.5 million ton) and SMCB (8.3 million
16000
3200

3000
15000 ton). With total production volume is expected about 13.5 million ton,
14000
2800
13000
the utilization rate is around 72%, lower than SMGR (91%) and SMCB
2600 12000 (86%). Ample capacity will put INTP in a better position to grab market
2400 11000
2200 10000 share and take the opportunity of higher demand. INTP also consider
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Sep-10 Nov-10 Dec-10
building new plant in the next few years.
Source : Bloomberg
• Cash machine. INTP has planned capital expenditures of US$75 million
(or Rp675 bn) in 2011, relatively small compare to our estimated
Current Price (12/16/2010) : 15,700
EBITDA FY2011 of Rp5,7 trillion. With current cash position of Rp3.77
52 Wk High (09/15/2010) : 19,400
trillion (as of September 2010) and assuming dividend payout ratio of
52 Wk Low (12/21/2009) : 12,000
60%, we estimate INTP’s cash and equivalent could reach up to Rp5.6
YTD Change : 2.000
YTD % Change : 14.60% trillion and Rp7.5 trillion (Rp2,038/sh) in year end 2011 and 2012 re-
Shares outstanding (Mn) : 3,681.23 M spectively. Hence, we believe that the Company could distribute higher
Market capitalization ( IDR Bn) : 57,795.34 B dividend payout ratio to shareholders (historically dividend payout ratio
Free Floating (Mn) : 1,803.8 M 15-30%).
Source : Bloomberg
• Highest EBITDA margin. INTP has EBITDA margin of 42.4% in 9M 2010,
Selected Financial higher than SMGR (34.4%) and SMCB (29.6%). This excellent perform-
Rp bn 2008 2009 2010F 2011F 2012F ance is contributed by the combinations of: 1) lower cost of production,
Sales 9,780 10,576 11,244 13,400 15,183
2) efficiencies in operating expenses, 3) focus on portland composite
cement (PCC) with lower clinker ratio, 4) operating the most efficient
EBITDA 3,073 4,241 4,750 5,696 6,665
plants only, and 5) increasing the portion of gas & alternative fuel as
Net Profit 1,746 2,747 3,310 4,078 4,882
energy source, that is cheaper than fuel.
EPS (Rp) 474 746 899 1,108 1,326
EPS Growth
(%)
77% 57% 21% 23% 20%
• Valuation. INTP is one of our picks (besides SMGR) as the Company
DPS (Rp) 40 150 448 540 665
has proven its good cost efficiency, ample capacity and potential higher
Dividend Yield
(%)
0.3% 0.9% 2.8% 3.4% 4.2% dividend payout. We derive our valuation using DCF method (assuming
ROAA (%) 16% 22% 24% 26% 27% WACC 13.5%), with target price Rp19,000/share, provide upside poten-
ROAE (%) 23% 29% 29% 30% 31% tial 21% from current price. This target price reflects P/E’11E 17.1x with
P/E (x) 33.1 21.0 17.5 14.2 11.8 excellent earning growth of 17.9% CAGR from 2010 to 2015. BUY
P/BV (x) 6.8 5.4 4.7 4.0 3.4 Figure1. Production capacity (in million ton)
EV/EBITDA 18.6 13.0 11.3 9.2 7.5
25 23,1
Source: Company & Ciptadana estimates Capacity Upgrading New plant 21,1 21.1 2,0
20 18,6 18.6 2.5
17.1 17.1
1.5

15

10

0
mln ton

2008 2009 2010F 2011F 2012F 2013F 2014F

Source: Company 13

Cement Sector December 17, 2010

 SECURITIES

Figure2. EBITDA margin

0.5

0.4

0.3

0.2

0.1

SMGR INTP SMCB

0

2010F

2011F
2003

2004

2005

2006

2007

2008

2009
Source: Company and Ciptadana estimates

Figure3. P/E band INTP

25000
21 x

20000 18 x

15 x
15000
12 x
10000
9x

5000

0
Jul-09

Mar-10
Jul-10
Jan-04
Apr-04
Aug-04

Apr-05
Aug-05
Dec-04

Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07

Aug-08
Dec-07
Apr-08

Dec-08
Apr-09

Nov-09

Nov-10

Source: Company & Ciptadana estimates

14

Cement Sector December 17, 2010

 SECURITIES

Financial Ratios
Income Statement
Rp bn 2008 2009 2010F 2011F 2012F
Revenue 9,780 10,576 11,244 13,400 15,183
Cost of good sold 5,756 5,468 5,543 6,485 7,085
Gross profit 4,025 5,108 5,701 6,915 8,098
Operating expenses 1,565 1,415 1,529 1,822 2,065
Operating profit 2,460 3,693 4,172 5,093 6,033
EBITDA 3,073 4,241 4,750 5,696 6,665
Other income (exp) (127) 103 184 273 390
Pretax profit 2,333 3,796 4,356 5,365 6,423
Tax (587) (1,048) (1,045) (1,288) (1,542)
Net profit 1,746 2,747 3,310 4,078 4,882

Balance Sheet
Yr-end Dec (Rp bn) 2008 2009 2010F 2011F 2012F
Cash & ST Investment 793 2,624 3,893 5,639 7,555
Account Receivable 922 1,345 1,349 1,541 1,746
Others 1,515 1,269 1,287 1,505 1,645
Total Current Assets 240 85 86 89 92
Fixed Assets 3,471 5,323 6,615 8,774 11,037
Other Assets 7,815 7,948 7,970 8,042 8,310
Total Assets 11,287 13,271 14,585 16,815 19,347
Current Liabilities 1,944 1,771 1,460 1,575 1,656
Non-current Liabilities 821 801 759 782 799
Total Liabilities 2,765 2,572 2,219 2,358 2,454
Minority Interests 22 24 24 24 24
Total Equity 8,500 10,680 12,343 14,434 16,869

Ratio
2008 2009 2010F 2011F 2012F
Gross margin (%)
41.1% 48.3% 50.7% 51.6% 53.3%
Operating margin (%)
25.2% 34.9% 37.1% 38.0% 39.7%
Net margin (%)
17.8% 26.0% 29.4% 30.4% 32.2%
Net gearing (%)
Net Cash Net Cash Net Cash Net Cash Net Cash
Debt to Equity (%)
10.6% 2.2% 0.0% 0.0% 0.0%

Assumptions
Sales volume (mln ton) 2008 2009 2010F 2011F 2012F
Domestic 12.1 11.6 12.6 14.2 15.4
Export cement 0.1 0.0 - - -
Export clinker 2.2 1.5 0.9 0.9 0.9

National demand (YoY) 11.4% 0.7% 6.0% 9.0% 7.0%

Domestic ASP (YoY) 24.6% 14.2% 0.0% 7.0% 5.0%
Source: Company & Ciptadana estimates
15

Cement Sector December 17, 2010

 PT Holcim Indonesia (SMCB) HOLD
12-Month Price Target: Rp 2,650/shr SECURITIES

JCI vs SMCB Early stage of the new plant

4000 2600
3800 JCI SMCB

3600
2400
• New plant is expected to commence in 2013. SMCB have announced to
3400 2200
build the new plant and power plant in Tuban, East Java, with invest-
3200
3000
2000
ment cost about US$400 million (or Rp3,6 trillion) and capacity of 1.6
2800 1800
million ton/year. This plant is expected to commence in 2013. The exe-
2600

2400
1600
cution of this plant will play a crucial role in the performance of SMCB
2200 1400
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Sep-10 Nov-10 Dec-10
in next couple years.

Source : Bloomberg
• Quasi reorganization. SMCB’s managements have announced a plan to
do quasi reorganization, which needs approval from shareholder in
EGM in December 17, 2010. We view positive this corporate action,
Current Price (12/16/2010) : 2,300
as:1) SMCB’s equity will jumped by 73% to Rp6.35 trillion from Rp3.67
52 Wk High (11/09/2010) : 2,575
trilion in June 2010, 2) SMCB can pay dividend (as the retain earnings
52 Wk Low (12/21/2009) : 1,440
YTD Change : 750 reverse to positive), 3) lower debt ratio. We believe this was early step
YTD % Change : 48.39% to get financing to build the new plant in Tuban.
Shares outstanding (Mn) : 7.662.9 M
Market capitalization ( IDR Bn) : 17,624.7 B • Debt financing is a better option. To build the new plant, we estimate
Free Floating (Mn) : 1.737.2 M that SMCB will need external funding about US$110 million or Rp1 tril-
Source : Bloomberg lion. We believe that the managements will prefer debt/loan financing
rather than equity financing to fulfill the capital expenditure plan. As-
suming total new debt about Rp1 trillion, SMCB’s debt to equity ratio is
Selected Financial still manageable, around 0.1x and 0.2x in year end 2011 and 2012 re-
Rp bn 2008 2009 2010F 2011F 2012F
spectively.

Sales 4,803 5,944 5,975 6,719 7,268

• Shifting from export to domestic market. In the last 3 years, SMCB have
EBITDA 1,378 1,843 1,790 2,098 2,464
exported more than 1 million ton of clinker and 500-600 thousands of
Net Profit 282 896 874 1,130 1,448 cement to several countries. With current production capacity of 8.3
EPS (Rp) 37 117 114 147 189 million ton/year and increasing demand from domestic market, we be-
EPS Growth lieve SMCB will gradually shift its export to domestic market. But we
67% 217% -2% 29% 28%
(%)
think SMCB need to promote more intense its marketing campaign &
ROAA (%) 4% 12% 11% 13% 15%
franchising of Solusi Rumah & Holcim Beton to maintain its market
ROAE (%) 12% 31% 23% 24% 24% share.
P/E (x) 62.4 19.7 20.2 15.6 12.2

P/BV (x) 6.9 5.3 4.2 3.3 2.6

• Valuation. SMCB has the highest leverage (both from operating and
EV/EBITDA financial leverage) and the highest beta, compare to SMGR and INTP.
15.1 10.9 10.7 8.6 6.6
(x)
We derive our valuation using DCF method (assuming WACC 13.9%),
Source: Company & Ciptadana estimates
with target price Rp2,650/share, provide only upside potential 15% from
current price. This target price reflects P/E’11E 18.0x and
EV/EBITDA’11E 9.9x. HOLD

16

Cement Sector December 17, 2010

 SECURITIES

Figure1. Quasi Reorganization (QR)

as of June 2010 before QR after QR Chg (%)
Current assets
Cash and equivalent 715.4 715.4 -
A/R 584.0 584.0 -
Inventory 403.1 403.1 -
Others 83.6 83.6 -
Non current assets
Fixed asset 5,362.9 8,043.6 50.0
Others non-current asset 325.3 325.3 -
Total assets 7,474.2 10,154.9 35.9

Current liabilities
A/P 574.2 574.2 -
Short term debt 597.9 597.9 -
Others current liabilities 289.3 289.3 -
Non current liabilities
Long term liabilities 1,838.5 1,838.5 -
Others long term liabilities 503.1 503.1 -
Total liabilities 3,803.1 3,803.1 -

Minority interest 1.3 1.3 -

Paid-up capital 3,831.5 3,831.5 -
Additional paid-in capital 3,890.5 2,587.3 (33.5)
Restructuring (114.9) (114.9) -
Exchange difference (0.4) (0.4) -
Deficit (3,936.8) 47.1 101.2
Equity 3,669.8 6,350.5 73.0
Source: Company

17

Cement Sector December 17, 2010

 SECURITIES

Figure2. Net gearing – still manageable

1.6
Our estimation Assuming new plant
1.4
1.2

1
0.8
0.6
0.4
0.2

0
-0.2 2007 2008 2009 2010F 2011F 2012F

-0.4

Source: Company and Ciptadana estimates

Figure3. SMCB’s market share - declining

8 17.0%
Domestic Export cement Export clinker M/S
7 16.0%

6 15.0%

14.0%
5
mln ton

13.0%
4
12.0%
3
re-branding to Holcim 11.0%
2 10.0%
1 9.0%

- 8.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 11M 10

Source: ASI

18

Cement Sector December 17, 2010

 SECURITIES

Financial Ratios
Income Statement
Rp bn 2008 2009 2010F 2011F 2012F
Revenue 4,803 5,944 5,975 6,719 7,268
Cost of good sold 2,933 3,694 3,681 4,027 4,136
Gross profit 1,870 2,250 2,294 2,692 3,132
Operating expenses 884 852 891 983 1,057
Operating profit 986 1,398 1,402 1,709 2,076
EBITDA 1,378 1,843 1,790 2,098 2,464
Other income (exp) (683) (101) (222) (182) (119)
Pretax profit 304 1,297 1,180 1,527 1,957
Tax (21) (385) (307) (397) (509)
Net profit 282 896 874 1,130 1,448

Balance Sheet
Yr-end Dec (Rp bn) 2008 2009 2010F 2011F 2012F
Cash & ST Investment 853 380 1,113 2,378 3,991
Account Receivable 580 664 773 862 928
Others 492 432 548 610 656
Total Current Assets 1,925 1,476 2,434 3,850 5,574
Fixed Assets 5,598 5,461 5,233 5,004 4,776
Other Assets 152 328 328 328 328
Total Assets 7,675 7,265 7,995 9,182 10,678
Current Liabilities 1,143 1,163 1,079 1,127 1,174
Non-current Liabilities 3,994 2,788 2,727 2,736 2,737
Total Liabilities 5,137 3,950 3,806 3,864 3,912
Total Equity 2,538 3,315 4,188 5,319 6,767

Ratio
2008 2009 2010F 2011F 2012F
Gross margin (%) 38.9% 37.8% 38.4% 40.1% 43.1%
Operating margin (%) 20.5% 23.5% 23.5% 25.4% 28.6%
Net margin (%) 5.9% 15.1% 14.6% 16.8% 19.9%
Net gearing (%) 119.0% 52.3% 19.3% -9.0% -30.9%
Debt to Equity (%) 202.4% 119.2% 90.9% 72.6% 57.8%

Assumptions
Sales volume (mln ton) 2008 2009 2010F 2011F 2012F
Domestic 5.4 5.3 5.6 6.1 6.5
Export cement 0.5 0.6 0.4 0.2 0.0
Export clinker 1.0 1.1 1.1 1.1 0.9
National demand (YoY) 11.4% 0.7% 6.0% 9.0% 7.0%
Domestic ASP (YoY) 20.5% 17.7% 0.0% 7.0% 5.0%
Source: Company & Ciptadana estimates

19

Cement Sector December 17, 2010

 SECURITIES

EQUITY RESEARCH

Analyst Technical Analyst

Syaiful Adrian
Strategy, Banking, Resources
Phone : (62-21) 255 74 919
Email : adriansyaiful@ciptadana.com
Analyst
Sonny John
Telecommunication, Infrastructure, Property
Phone : (62-21) 255 74 739
Email : johnsonny@ciptadana.com
Analyst
Fadil Kencana
Consumer, Plantations
Phone : (62-21) 255 74 820
Email : kencanafadil@ciptadana.com
Trevor Gasman
Phone : (62-21) 255 74 934
Email : gasmantrevor@ciptadana.com
Research Assistant
Sumarni
Phone : (62-21) 255 74 920
Email : sumarni@ciptadana.com
Research Assistant
Silviana Sumardjono
Phone : (62-21) 255 74 740
Email : sumardjonosilviana@ciptadana.com

EQUITY SALES

Head of Sales
John Herry Teja
Phone : (62-21) 255 74 808
Email : tejajohn@ciptadana.com

PURI - Kencana Bandung

Chandra Herotionjaya Gavin Ishak
Phone : (62-21) 5835 6025 Phone : (62-22) 732 2288
Email : HerotionjayaChandra@ciptadana.com Email : ishakgavin@ciptadana.com

Lindeteves Surabaya
Wiwi Wijaya Imelda Soetikno
Phone : (62-21) 622 00360 Phone : (62-31) 534 3938
Email : wijayawiwi@ciptadana.com Email : soetiknoimelda@ciptadana.com

Pluit Semarang
Ferry Ishak Lusiana Permatasari
Phone : (62-21) 666 96 688 Phone : (62-24) 352 1199
Email : ishakferry@ciptadana.com Email : permatasarilusiana@ciptadana.com

Bogor Medan
Daud Dirgahayu Juliawaty
Phone : (62-251) 836 2255 Phone : (62-61) 4555 600
Email : dirgahayudaud@ciptadana.com Email : juliawaty@ciptadana.com

20

Cement Sector December 17, 2010

 SECURITIES

HEAD OFFICE - JAKARTA

PT CIPTADANA SECURITIES
Plaza ASIA (d/h. ABDA)
Office Park unit 2
Jl. Jend. Sudirman kav. 59
Jakarta 12190
Phone : (62-21) 255 74 800
Fax : (62-21) 255 74 900
Email : research@ciptadana.com
Website : http://www.ciptadana.com

JAKARTA - Lindeteves Trade Center SEMARANG

GF 2 Blok RA No. 41 Jl. Gajah Mada No. 107
Jl. Hayam Wuruk No.127 Semarang 50136, Indonesia
Jakarta 11180, Indonesia Phone : (62-24) 352 1199
Phone : (62-21) 6220 0360 Fax : (62-24) 356 5599
Fax : (62-21) 6231 0960
SURABAYA
JAKARTA - PLUIT Wisma Dharmala Surabaya
Jl. Pluit Raya No. 7 Ground Floor Suite 5 & 6
Jakarta 14450, Indonesia Jl. Panglima Sudirman 101-103
Phone : (62-21) 6669 6688 Surabaya 60271, Indonesia
Fax : (62-21) 6669 0770 Phone : (62-31) 534 3938
Fax : (62-31) 534 3886
JAKARTA - Puri Kencana
Perkantoran Puri Niaga III BANDUNG
Jl. Puri Kencana Blok M8 No.1H-1, Kembangan Wisma Lippo Bandung 3rd Floor
Jakarta 11610, Indonesia Jl. Jend. Gatot Subroto No.2
Phone : (62-21) 5835 6025 Bandung 40262, Indonesia
Fax : (62-21) 5835 6026 Phone : (62-22) 732 2288
Fax : (62-22) 732 2287
BOGOR
Jl. Salak No.20 MEDAN
Bantarjati, Bogor Tengah Jl. Cut Nyak Dien No.14
Bogor 16151, Indonesia Medan 20152, Indonesia
Phone : (62-251) 836 2255 Phone : (62-61) 4555 600
Fax : (62-251) 837 0054 Fax : (62-61) 4556 400

DISCLAIMER
This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities men-
tioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opin-
ions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No rep-
resentation or warranty, expressed or implied, is made by CIPTADANA SECURITIES or any other member of the Ciptadana
Capital, including any other member of the Ciptadana Group of Companies from whom this document may be received, as to the
accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment
as of this date and there can be no assurance that future results or events will be consistent with any such opinions, forecasts or
estimates. The information in this document is subject to change without notice; its accuracy is not guaranteed; and it may be
incomplete or condensed.
21

Cement Sector December 17, 2010