Indonesia Industry Focus

Indonesia Cement Sector
Refer to important disclosures at the end of this report

ed-TH / sa- MA

Indocement
Semen Indonesia

Mkt Cap Target Price Performance (%)
3 mth 12 mth
US$m
Rp

20,000
10,250

5,545
4,579

14,500
8,200

Rating

(2.1) (16.8) FULLY VALUED
(7.0) (31.1) FULLY VALUED

Source: DBS Vickers, AllianceDBS Research
Indocement Tunggal P. : Indocement was established in 1975. The
expanded heavily in the 90’s, prior to Heidelberg Cement Group
becoming the majority shareholder in 2001. 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
80

m tonnes
6% CAGR

70
60
8% CAGR

50
5% CAGR
40
30
20
10

2017F

2015

2016F

2014

0

2013

Slight tweak in earnings as we rolled earnings forward,
maintain negative view on incumbents. We revised our
FY16/17F earnings for INTP and SMGR between (-)2.9% and
2% to reflect the cement sales volume achievement in FY15.
Our estimates are still one of the lowest in the street. Our
target prices are pegged to (-)1SD of respective 10-year mean
forward PE (similar to 2004 levels when industry utilisation was
low), implying another 20-28% downside as de-rating may
continue due to shifts in competitive landscape and legitimate
threat from new entrants. We prefer exposure to SMGR as
compared to INTP for its market leader position in important
markets and its more diversified presence spread throughout
the Indonesian islands. Upside risk to our calls may come from
significant delays in new players’ greenfield cement plants as
this reduce competition and lift utilisation rates.

Rp

2012

... and put pressure on price and subsequently margins.
Low utilisation rate, continued shifts to bulk segment (with
lower ASP) and government's direction to push efficient
infrastructure development (i.e. with lower cost) will put
pressure on ASP and subsequently erode cement producers’
margins going forward.

Price

2011

Flurry of new capacities to drop utilisation rate further...
An additional 19.3m tonnes of new installed capacity is
expected to come on stream by the end of 2017, with
aggressive growth from foreign new entrants (hence, by 2017,
they will represent 12% of total industry capacity, from the
current 6%). Considering the supply-demand imbalance, the
industry's design capacity utilisation rate will continue to drop
to 67% in 2017 (similar level to 2004).

STOCKS

2010

 Maintain FULLY VALUED calls for both INTP and SMGR
Moderate growth in demand, driven by bulk segment.
Cement demand momentum started to pick up in 4Q15
(driven by infrastructure development) after a stunted growth
in the first three quarters of last year. Overall, we estimated
cement volume to increase by 5.4%/6.6% to 63.8/67.8m
tonnes in FY16/17F. Growth accelaration in infrastructure
development and slower property pre-sales will push bulk
portion further to c.30% in 2017 (from current 23.7%).

2009

Pressure on ASP remains and will impact margins going
forward

2008



Tjen San Chong +603 2604 3972
tjensan@alliancedbs.com

2007

Burgeoning capacity continues to create supply-demand
imbalance

2006



Analyst
Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com

2005

Bulk segment remains as palpable growth driver for
domestic cement demand

2004



JCI : 4,779.99

2003

Challenges for wily veterans to
cement their grip

2 Mar 2016

2002

DBS Group Research . Equity

Source: Indonesia Cement Association (ASI), DBS Vickers, AllianceDBS
Research

Industry Focus
Indonesia Cement Sector

Encouraging momentum on demand
Jan cement sales volume grew 4.4% y-o-y (on apple-to-apple
basis after excluding sales volume from Semen Jawa, a new
member of Indonesia Cement Association [ASI]) to 5.05m
tonnes. Semen Jawa's cement sales made up 1.8% of total
domestic demand.

Property pre-sales to recover moderately (not a surge)
45,000

Rpbn

plateauing

40,000
35,000
30,000
25,000
20,000

Cement demand has started to pick up in 4Q last year (as
shown in chart below), after stunted growth in the early part of
last year. It is mostly driven by infrastructure development and
hence the apparent shift towards bulk segment.

15,000
10,000
5,000
2009 2010 2011 2012 2013 2014 2015 2016F2017F

Quarterly domestic cement demand
25%
20%

16,000
15%
10%
5%

12,000
0%

10,000
4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

-5%

Share of Bulk and Bag cement sales in Indonesia
100%

Source: Indonesia Cement Association (ASI), DBS Vickers, AllianceDBS
Research

Overall, we estimate that domestic cement demand will grow
5.4%/6.6% to 63.6m/67.8m tonnes in FY16/17F. Growth
acceleration in infrastructure development, coupled with slower
property pre-sales growth (as discussed in detail in our latest
Indonesia property and industrial estate sector report on 5 Jan
2016 titled On the mend after a major setback, despite potential
booster from the government's much heralded one million
house programme), will boost bulk segment demand.

90%

19%

20%

21%

22%

24%

27%

29%

79%

78%

76%

73%

71%

2017F

11,000

2016F

13,000

2015

14,000

2014

15,000

We forecast bulk segment to grow at a 17.2% CAGR between
2015-2017F, while forecasting just 2.2% CAGR for the same
period for the bag segment. Therefore, this pushes bulk portion
to even higher at c.30% in 2017. The long-term multiplier effect
from the much heralded infrastructure development to property
pre-sales will remain as a key positive catalyst, but not in the
near term.

80%
70%
60%
50%
40%

81%

80%

30%
20%
10%
0%

2013

17,000

Source: Property developers under our coverage, DBS Vickers,
AllianceDBS Research

2012

Cement sales (LHS)
Growth y-o-y (RHS)

2011

18,000 '000 tonnes

Bag

Bulk

Source: Indonesia Cement Association (ASI), DBS Vickers, AllianceDBS
Research

Infrastructure spending as % of GDP
700

Rp tr

Infrastructure Investment (LHS)

% of GDP (RHS)

5.5%

Annual cement demand growth
80

600
5.0%

m tonnes

Bag

Bulk

6% CAGR
(overall)

70

500
4.5%

400

50

300

4.0%

200

40

10.8

12.4

13.1

14.3

17.2

19.7

17.2% CAGR
(for bulk)

8.9
6.6

30
3.5%

100
0

3.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

Source: Ministry of Finance (state budget data), DBS Vickers,
AllianceDBS Research

Page 2

60

20

34.2

39.1

44.1

45.6

46.8

46.1

46.5

48.2

2.2% CAGR
(for bag)

10
0
2010

2011

2012

2013

2014

2015

2016F

2017F

Source: Indonesia Cement Association (ASI), DBS Vickers, AllianceDBS
Research

9% 6. AllianceDBS Research Page 3 . After experiencing no growth last year.6x 2015 2017F Source: Companies.0% 10.0% 2015 "Big 3" 4.9% 6.3% 56.7% 80% 70% 22.4% 56. AllianceDBS Research We believe that Sumatra will continue to be the growth driver for cement demand by having around 365km of in-progress toll road projects (i.1% 53. up from the current 6%).0% 5.0% +9% 60 Given no sudden up-reversal on commodity-related businesses. Note: “Big 3”: SMGR.0% 15. more infrastructure projects in Palembang.0% 10.6% 23. Cement producers’ installed capacities 10% 80 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Indonesia Cement Association (ASI).6% 7. Java will remain as the most lucrative market given its sheer demand size at 56% of total domestic demand. we believe that cement demand in Kalimantan will continue declining this year.0% 21. AllianceDBS Research Note: “Big 3”: SMGR.6% 7.4% 7.9% 21.4% 7.0% 9. "Big 3" Other local 50 Foreign 40 30 20 +68% 10 2.5% Sumatra 9. INTP and SMCB (including LaFarge facilities in Aceh) % of total capacities 100% 90% 80% Historical & expected demand growth per region 30% 6% 10% 11% 12% 12% 13% 77% 74% 70% 60% 50% 40% 84% 20% -10.3% 55. DBS Vickers.6% of domestic demand) and Sulawesi and other areas in East Indonesia (representing 15.2% 24. Medan – Binjai.8% 21.2% 6. AllianceDBS Research. DBS Vickers.e.0% 10.0% 9.1% 5.0% 5.2% Java -15.5% 7.8% 7. DBS Vickers.0% 60% 50% 40% 30% 60.3% 55. DBS Vickers.6% 57. they will represent 12% of total industry capacities in 2017.7% 23.0% 0. which are the backbone of Kalimantan’s economy.3% 20% Flurry of new capacities to continue Our checks suggest an additional 19.7% 55. Kalimantan m tonnes 70 10.4% 6.4% 23. The foreign new entrants (most of them are deep pocketed with strong financial positions) are very aggressive and are expected to almost triple their cumulative installed capacities within the same period (i.3% 7.0% 20.0% 0.3m tonnes of new installed capacity (about 24% of installed capacity on 2015) will come on stream in 2016 and 2017.7% of domestic demand). Medan – Kualanamu.0% 2015 2016F 2017F 4. Demand distribution by region Java Sumatra Kalimantan Sulawesi Others 100% 90% 6.e.6% 6.0% -5.Industry Focus Indonesia Cement Sector Sumatra (representing 21. Palembang – Indralaya.4% 6.8% 6.0% 7.9% of domestic demand) were the cement demand growth drivers that offset stunted growth in the most lucrative market Java (representing 55.3% 23. Those additional capacities will result in some areas’ demand (such as South Sumatra) being better served. Pekanbaru – Dumai and Bakauheni – Terbanggi Besar). INTP and SMCB (including LaFarge facilities in Aceh) 5.7% 55.8% 7. will add only 9% of their 2015 capacities in this time frame.7% of domestic demand) and declining demand in Kalimantan (representing 6.0% -10.8% 55.0% 5.6% -5.7% Sulawesi 2016F Other local 2017F Foreign Source: Companies. The “big 3” producers which represents 84% of total capacities.0% 5. we believe that cement demand in Java will grow moderately to 4% this year. but most of the key markets will experience oversupply.1% Others 10% 0% -0.0% Source: Indonesia Cement Association (ASI).4% 7. South Sumatra (as this city is chosen as the host for Asian Games 2018 together with Jakarta) and the government's commitment to develop Tanjung Api-Api Special Economic Zone (SEZ).

transportation and handling Direct labor 100% 90% 80% 38.. Ministry of Energy and Mineral Resources (ESDM).I4 (LHS) Coal (LHS) ICP (RHS) USD/IDR (RHS) 140 120 130 115 120 110 110 100 105 90 100 80 70 95 60 90 Jan-16 Feb-16 Dec-15 Nov-15 Oct-15 Sep-15 Jul-15 Aug-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Feb-15 50 Source: State-owned electricity company (PLN).P. Bloomberg Finance L.5% 15. 2016F 2014 2015F 2013 2012 2011 2010 2009 2008 2007 2006 2005 In addition.3% 13. 20% 2004 60% Source: DBS Vickers. AllianceDBS Research Others .4% 15.1% 44. AllianceDBS Research 70% Given this situation. pricing downward pressure is inevitable and will subsequently affect other producers. DBS Vickers.7% 18.7% 50% 40% 23.4% 30% 20% 10% 16.P. As competition continues to heat up (especially the threat from new entrants). similar to 2004 levels. DBS Vickers. AllianceDBS Research Note: The indexing used Jan 2015 price as 100 Page 4 2017F Source: Bloomberg Finance L. there are two extra factors that will contribute to put pressure on ASP: 1) continued shifts to bulk segment (with lower ASP) along with the industry’s direction.0% SMGR INTP 0% Energy prices & USD/IDR trend Electricity tariff . and 2) the fact that infrastructure developments are being pushed aggresively (funded by state-owned companies) and state-owned cement producer SMGR being the market leader in important regions. the industry's effective utilisation (without adjusting for 1-month maintenance period) will continue to drop to 67% in 2017. reasonable hike in electricity tariff and stable IDR (so far) have helped cement producers to defend their eroding but still attractive margins.. Pricing behaviour of new entrants has always been fluid and disruptive. EBITDA margins vs utilisation rate 110% 45% 105% 100% 40% 95% 90% 35% 85% 80% 30% 75% Capacity utilisation rate (LHS) 70% INTP's EBITDA margin (RHS) 65% SMGR's EBITDA margin (RHS) 25% Expected cash cost breakdown in FY16F Coal/fuel Electricity Distribution.4% 7.Industry Focus Indonesia Cement Sector Low utilisation puts pressure on price increase and margins Given the supply-demand imbalance. the low utilisation rate will further put a cap on the ability of cement producers to increase ASP. cost efficiency (and cutting) is the name of the game for incumbent cement producers. however the price gap has been narrowing.3% 60% 7. Continuously low oil and coal prices.

Between the two.5% 38. Meanwhile.200 7.232 27.157 18.310 43.052 18.500 14.364 20.034 28.614 FY17F 18.899 4.0% in FY16/17F. Summary of assumptions changes Domestic volume ('000 tonnes) Now Prev Chg (%) Revenue in Rpbn GP margin EBITDA margin Operational profit in Rpbn Net profit in Rpbn TP in Rp/sh Now Prev INTP FY16F 17.1% 2.7% 44. we adjusted our target prices by 1% for INTP (to Rp14.7% 30. Sumatra (Semen Padang has 43.732 0. AllianceDBS Research Page 5 .200).0% 4. we revised our FY16/FY17F earnings for INTP and SMGR by (-)2.286 21.8% 25.330 3.450 5. not just the Java island.275 17.9% 38. All in. we tweaked the sales volume on INTP by -1.742 Now Prev -2.5% 31.223 6.1% 4.9% 32. pegged to -1SD of mean PE forward.6% market share) and Sulawesi (Semen Tonasa has 63. At the current multiple.0% 44.3%/3.9% to 2%.530 4.969 SMGR FY16F 27.274 26.3% 3.621 4.9% Chg (%) Recommendation FY15F 16.9% -3. reflecting our negative stance on the cement sector. Subsequently.770 4.9% -1.4% market share).1% 14. which is the most lucrative but having the stiffest competition going forward).066 27.5% 24.5% -3.784 16.3% -1.636 Chg (%) -2.1%/2.3x FY16F EV/EBITDA.9% -0. Java (Semen Gresik has 36.026 22. Both have tested the trough valuations sometime in 3Q15 and rebounded sharply to current levels.0% 25.948 29.375 Chg (%) -2.1% 43. INTP currently trades at 16.600 -1% FULLY VALUED FULLY VALUED FY15A 25.521 3.906 5.603 4.2x FY16F PE (at its 10-year mean forward PE) and 8.Industry Focus Indonesia Cement Sector Maintain negative view on incumbents.2% -3. These changes led us to revise up SMGR’s revenue by 4.3% 8.573 19.705 4.0% Now Prev Now Prev Now Prev 44.2% market share).385 4.761 30. Our target prices imply another 20-28% downside and therefore we maintain our FULLY VALUED calls on both counters. Margins were slightly adjusted for continuously low commodity prices (pushing down cement producers cost) and the more stable IDR offsetting cement producers’ need to flush down inventory and maintain/gain market share.464 FY17F 29. there is no significant gaps between SMGR and INTP.6% 5.5% 6. SMGR currently trades at 13.5% -6.9%/3.806 37.8% in FY16/17F.5% considering the sales volume achievement in FY15.796 -2. rolled earnings forward We revised up slightly FY16/17F domestic sales volume for SMGR by 3. These changes led us to revise down INTP’s revenue by 4.032 5.8% 39.6% for FY16/17F with the expectation of further pressure from competition in West Java area.2% -4.880 2.590 4.1% 5.5x FY16F PE (at its 10-year mean forward PE) and 10.1% 5.455 4.e.481 4.800 5% FULLY VALUED FULLY VALUED Source: DBS Vickers.6% 31.8% 30. Our estimates are still the lowest in the street.6% 25.0% -2.877 31.030 43.0% 6.2% 31.6% 18. expected recovery in Indonesia's economy ahead (potential boost from infrastructure projects) and the intense competition in major regions.3% Now Prev Chg (%) Now Prev 4.142 5.8% 39. we prefer exposure to SMGR for its market leader position (through its three established brands) in the important markets.8x FY16F EV/EBITDA.500) and 5% for SMGR (to Rp8.5% 26. and its more diversified presence spread throughout the Indonesian islands (i.5%/6.

0 18. AllianceDBS Research Source: Bloomberg Finance L.0 +2SD.6 15.0 Ave.0 Average 14. AllianceDBS Research .0 10.Days of Receivables (LHS) INTP . 3. 10.8 9. 6. 17. DBS Vickers.Inventory days (RHS) INTP .8 -2SD.0 Ave. 27.9 6.0 5.0 -2SD.0 +2SD.P.0 29. AllianceDBS Research Page 6 75 45 18. 7. 13.0 -1SD.0 16.0 Source: Bloomberg Finance L.0 -2SD.0 +2 stdev +1 stdev 16. 22.6 12.Industry Focus Indonesia Cement Sector INTP PE Band INTP EV/EBITDA Band 39.0 +2SD.0 +1SD. 10.0 Ave.0 +2SD. AllianceDBS Research JCI Index PE Band Days of receivables and inventory trending up (x) 85 49 20. 16. DBS Vickers. 11.0 4.0 Ave.0 12.0 14. DBS Vickers. DBS Vickers.P.0 14.Inventory days (RHS) Source: Bloomberg Finance L. 6.2 19.0 -1SD. AllianceDBS Research Source: Bloomberg Finance L.0 -1 stdev 70 43 41 65 39 60 37 55 35 50 2010 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: Bloomberg Finance L.0 20.5 4.1 10.0 Jan-11 80 47 2011 2012 2013 2014 2015 SMGR . 12. 5.0 - 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 Jan-16 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 Jan-16 - Source: Bloomberg Finance L.0 -2SD. 14. 19. 7.2 12.0 14.P. AllianceDBS Research SMGR PE Band SMGR EV/EBITDA Band 16. DBS Vickers.0 +1SD.4 24.0 10.P.0 8.Days of Receivables (LHS) SMGR .0 +1SD.0 25. 13.4 -1SD. 8.0 -1SD.0 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 Jan-16 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 Jan-16 4.P. 11.0 8.P. DBS Vickers.5 6.0 34.2 10.8 +1SD.5 2.

6% 17.1% 7.2% 27.4% 16.8 11.RHS 96% 90% 80% 80.514. Indonesia Cement Association (ASI).5% 1. AllianceDBS Research Note: Utilisation rate is based on design capacities (without considering cement plant maintenance period).191.0 19.6 20.3 7.000 30% 20% 20.6 9. DBS Vickers.9% 19.3% 14.0 28.4 15.2 12.5% China Shanshui Cement 691 HK 6 2.9 6.7 17.884.025 5.8 25.9 Weighted average China Siam Cement Weighted average Thailand SCC TB 442 14.8% 24.6% 11.9% 10.5% 6.9 8.5% 30.0 12.9% 24.0% 35.4% 14.6 9.6 8.7 Weighted average Indonesia Anhui Conch Cement 914 HK 15 PE (x) FY16 EV/EBITDA (x) FY17 FY16 EBITDA margin (%) ROE FY17 FY16 FY17 FY15 8.LHS Design capacity (000 tons) .7 SMCB IJ 935 536.2 9.3% 7.7 11.621.3 11.4 19. AllianceDBS Research Note: (*): not under our coverage.8 7.5 5.9% 8.5 4.6 9.734.3% 3.3 1.2 6.2 31.0 6.4% 20. DBS Vickers.7 INTP IJ 20. DBS Vickers. consensus numbers Price and valuation is as of 29Feb2016 Page 7 .250 4.8% 17.4% 27.000 67% 70% 67% 60% 60.4% 20.Industry Focus Indonesia Cement Sector APPENDIX Indonesia cement producers: Demand.136.9 11.4% 11.9 30.1 16.1 nm nm 21.2% 1.2 9.P.6 6.0 7.7% 11.000 100% '000 tonnes Demand (000 tons) .000 50% No additional capacity until 2009 Demand growth in-line with GDP growth 40% 40.3% 14.0 5.548.6% 15.4% Source: Bloomberg Finance L.7% nm China National Building Material 3323 HK 3 2.9 15.5 15.9% nm West China Cement * 2233 HK 2 1.2% 7.6% 17.4 nm nm 1. estimates are based on Bloomberg Finance L.4 5.5% Asia Cement (China) Hldgs * 743 HK 2 316. supply and utilisation rate dynamics 100.1 18.4% 17.3% CR Cement * 1313 HK 2 1.8 10.389.4 16.5 15.1 8.4% 16. Cement regional peers valuation Company Semen Indonesia Indocement Tunggal Holcim Indonesia * Ticker Price Code (lcl currency) Market Cap (USD m) SMGR IJ 10.000 10% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F Source: Cement producers.7 11.7 8.1 16.5 11.4 16.6 7.P.LHS Utilization rate .4 9.0 13.9 26.3 22.

250 2.450 101.000 West Java 16.100 1.300 22.000 Others - - - - - - - - 1.200 1.500 3.500 1.000 2.000 3.500 1.600 5.500 1.500 1.600 1.600 2.600 14.600 18.300 4.600 1.500 3.620 7.500 - - 1.200 1.100 Source: Cement producers.300 22.550 27.600 1.700 29.100 9.000 4.900 24.500 1.300 2.400 9.500 1.050 7.600 20.000 West Sumatra 6.500 3. AllianceDBS Research Page 8 .500 5.500 Anhui Conch Siam Cement West Java - - - - 1. DBS Vickers.000 36.600 1.800 97.330 6.000 36.700 3.600 1.400 14.400 14.200 5.900 24.500 3.800 8.500 57.000 Riau Central Java Semen Indonesia (SMGR IJ) Indocement (INTP IJ) Holcim Indonesia (SMCB IJ) Bosowa Central Java East Java 1.600 2.800 Semen Merah Putih (Wilmar) Banten - - 750 1.600 - - - - - - 18.600 5. Indonesia Cement Association (ASI).300 South Kalimantan 2.Industry Focus Indonesia Cement Sector Indonesia cement producers: Historical and estimated additional design capacities Company Location 2012 2013 2014 2015F 2016F 2017F East Java 11.600 Kupang NTT 550 550 550 550 550 550 South Kalimantan - - 1.050 72.400 81.000 16.150 63.900 22.300 South Sulawesi 4.000 2.400 14.400 3.400 3.200 1.500 12.200 1.400 - - - - 3.600 5.300 7.250 5.300 8.600 2.500 South Sulawesi 2.500 30.900 West Java 5.600 5.500 12.050 Semen Baturaja (SMBR IJ) South Sumatra 1.500 3.500 24.100 10.000 4.300 8.400 7.500 3.800 1.500 3.750 Panasia Central Java - - - - 1.600 5.600 Central Java 3.500 Puger East Java - - - 300 300 600 Jui Shin West Java Total - - - 1.850 Andalas (Lafarge) Aceh 1.000 2.600 2.500 West Java - - - - 2.000 14.000 2.000 4.800 12.200 7.500 1.200 East Java - - - - 1.000 3.100 Papua - - - - 750 750 3.300 22.300 10.500 3.300 7.200 1.300 10.750 4.000 17.600 2.

Orange: moderate competition (adequate supply). 2. Green: light competition (incumbents have the upper hand).Industry Focus Indonesia Cement Sector Industry Focus Indonesia Cement Sector Cement producer competition heat map Source: Cement producers. Utilisation rate is based on design capacities (without considering cement plant maintenance period). AllianceDBS Research Note: 1. Red circle: intense competition (oversupply). Indonesia Cement Association (ASI). DBS Vickers. Page 9 .

Industry Focus Focus Industry Indonesia Indonesia Cement Cement Sector Sector Cement producer production facility location Source: Cement producers. AllianceDBS Research Page 10 . DBS Vickers.

Industry Focus Indonesia Cement Sector Company Guides Page 11 .

0 Mar-12 Mar-13 Mar-14 Indocement Tunggal P.3 6. Version 2 Refer to important disclosures at the end of this report | Bloomberg: INTP IJ | Reuters: INTP. we revised FY16/17F earnings by 2.500 is pegged to 12x FY16F EPS.705 5.385 4. Expect positive volume growth after weak FY15. We expect property presales to recover moderately going forward after a 3. Our current estimates are one of the lowest in the street.0 22.455 1.210 1. This would reduce competition in INTP’s strongholds.9 3.4 11.580.580.996 6.580.7% y-o-y decline in FY15).6 1.580.1 Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs: 2015F 18.248 B: 13 (3) 1.com Price Relative Rp Relative Index 219 28. DBS Vickers.8 9.9 CASH 17.0 179 24.580.026 6.0 139 18.5 16.2 2.0 119 99 16. reduced our revenue estimate by 4.6 15.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex.9%/3.385 (16.278 6 1.2 4.8 16.500 (28% downside) (Prev Rp14. We estimate that 76% of the planned incoming capacity in 20152017 will be located in West Java.dbsvickers.8 (2) 1.278 1.795 5.790 5.8) 1. Equity 2 Mar 2016 FULLY VALUED Regaining composure Last Traded Price: Rp20.0 199 26.7 3.8 13. (LHS) Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.3 4.2 3.157 5.545 64.0 CASH 22.191 (17) 1. We expect new players to sacrifice margins to gain market share as they ramp up utilisation rates. Recovery in property presales.8 4. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Mar-15 79 Mar-16 Relative JCI INDEX (RHS) 2014A 19.1 13.7 CASH 17.7% y-o-y to 1. Slight adjustment in margins considering continuously low commodity prices and the more stable IDR.733 14.210 2 1. Java accounts for 70% of INTP’s domestic cement sales volume. Cap (Rpbn/US$m) Major Shareholders (%) HC Indocement Gmbr Mekar Perkasa Free Float (%) 3m Avg.191 1.574 16.786 4. Valuation: Our target price of Rp14. At A Glance Issued Capital (m shrs) Mkt.732 6.5 13. We cut FY16/17F domestic sales volumes by 1. coupled with expected higher portion of bulk segment.480 6.000 (JCI : 4. reduce the severity of competition from new players (better pricing power for incumbents).5 2. Bloomberg Finance L.278 895 7.9 VICKERS SECURITIES . at ()1SD of 10-year mean forward PE (similar to 2004 levels when utilisation rates were low).P ASIAN INSIGHTS ed: TH / sa: MA Maintain FULLY VALUED call.580.0 14.9 2016F 19. INTP still commands the highest EBITDA margins in the sector.779.JK DBS Group Research . INTP’s main market Java posted 5.tanuwijaya@id.455 4.271 5. But a sharp recovery in property presales would pose an upside risk to our cement volume sales assumptions.210 847 6.2 1.5%/6% in FY16/17F. Therefore.4%).382 15.432 1. All in.9 2017F 21.46m tonnes (below industry volume growth of 4. INTP hopes for better growth this year as there are many projects being kicked-off in Bandung (West Java) and Central Java. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex.com Tjen San Chong +603 2604 3972 tjensan@alliancedbs.705 4.350 6. Intense competition in Western Java to erode margins.432 5 1.6% after adjusting for FY15 achievement.681 73.580.9%/1.6 13. Key Risks to Our View: Significant delays in new players’ greenfield cement plants.0 159 20.271 5.6 1.305 S: 7 (2) 1.625 / 5.0 13.191 834 6.580.364 6.7% growth y-o-y (an early imporvement after 7.2 10.110 4. The early signs have been good as INTP’s Jan-16 cement sales grew 3.0 14.0 CASH 17.9%.432 1. and lift utilisation rates.695 4. our EBITDA margins will trend down for the next two years.0 22.to 4-year boom (2010-2013). This.Indonesia Company Guide Indocement Tunggal P.9 10. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials 3.600) Potential Catalyst: Rebound in property presales and better execution from nationwide infrastructure development Where we differ: Having one of the lowest estimates in the street Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 edward.091 5. The property sector remains the major cement consumer in Indonesia.99) Price Target : Rp14.431 H: 13 Source of all data: Company.951 16. AllianceDBS Research.

0% -10.9 31.100 Earnings Drivers: Domestic cement volume driving top line growth.600 2. SG&A expenses are expected to stay at 17-17.3 33.0 2013A 2014A Revenue trend Rp bn 10.6% CAGR. We forecast industry demand to grow modestly (in line with Indonesia’s real GDP growth) for the next three years as the country is entering a normal growth state. 10.960 850.784 17. In that period. With the additional 4.000 5. In addition. DBS Vickers. we expect INTP to lose market share to new foreign players. The skewed supply-demand imbalance will also see the utilisation rate of incumbent players remaining low.0% 6.0% 8.0 36.0% 0.104 982.0% -6.0% 4.0% -8.Company Guide Indocement Tunggal P.0% 2.8 Cost savings from efficiency and continuously low commodity prices help to alleviate more margin pressure.500 9.5% of revenue (vs 16% average in the past decade).2 14.800 11.0% 20.600 0 2013A 2016F 2017F EBITDA margin (%) 37.011.000 0 2013A 2014A Total Revenue 2015F 2016F 2017F Revenue Growth (%) (YoY) Market share trend in domestic market 33% 32% 31% 30% 29% 28% 27% 26% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FY16F FY17F Source: Company.6 22. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 13 .148 2014A 2015F 1. Domestic Sales Vol ('000 tones) CRITICAL DATA POINTS TO WATCH 17. This should prevent EBITDA margins from falling further (see chart).200 212.7% CAGR over 2015-2017F.5 30.8 2015F 2016F 2017F 29.300 0 Domestic ASP/tonne (in Rp) 958. INTP should experience similar growth.7 31.189 2013A 2014A 16. We forecast a modest 3% CAGR in ASP/tonne between 2015 and 2017F.041.70% of its COGS is transacted in USD. 13. 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. Shift to bulk segment will pressure margins. The benefits of lower coal and oil prices and the more stable IDR against the USD help to push down cash cost components.0% -4.4m capacity which came on stream in 2015. We expect INTP’s cash cost per tonne to increase by 4. while c.052 16. We forecast INTP’s sales volume to grow by a 5.800 425. a recovery after a weak 2015.4 0.200 6.0% -2. 2017F 997.000 Low capacity utilisation rate will cap SG&A expenses (as % of revenue).612 1.000 15.900 4. 7.400 637.275 2015F 2016F 18.642 18. which are willing to sacrifice margins to grab market share. we expect INTP’s utilisation rate to drop from 93% in 2014 to 73% in 2017F. Approximately 45% of INTP’s cash cost is for energy.265 Limited price upside because of competition. As the 2nd largest cement producer in the country. 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.

2 ‐1sd: 3.500.07x 3.7 ‐2sd: 2.53x 4.69x 2.0 2. 2014A 2015F 2016F ROE (%) 20.0 2013A Key Risks: Further price control by government. arguably the most popular brand in Indonesia. INTP’s dominance in Java (particularly West Java) could be under threat once the new players start production.6 0.7 0.000.10 0. We expect INTP to continue paying high dividends.0 1.14 0.4x 13.6 Share Price Drivers: Positive progress in nationwide infrastructure development.4x 11.0 3.0 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 PB Band (x) (x) 5.8 0. Good progress and faster infrastructure budget absorption should imply better cement demand and improvement in INTP’s utilisation rate and subsequently its profitability.0 ‐2sd: 12.0 Avg: 16. 2017F Capital Expenditure (-) +1sd: 18.0% 10.0% 0.7 0.6 0.Company Guide Indocement Tunggal P. Leverage & Asset Turnover (x) 0.5x 15. 2017F Forward PE Band (x) (x) 23.15x 2.0% 5.0 500.6x 19.7 0.5% yield annually. Its sales volume is concentrated in Java (over 72%).6x 17.500. possibly offering c. The company registers higher margins because of its centralised production facilities and premium pricing.0 High dividend yield. Slower execution will directly affect cement demand growth and subsequently negatively affect INTP’s utilisation and profitability.02 0.7 Avg: 3.12 0. Monthly cement sales data released by the Indonesia Cement Association (ASI) is a leading indicator of INTP’s stock price direction. other producers had to follow suit or risked losing their market share. Cement sales.0 3. Much heralded infrastructure projects' slower-than-expected rollouts.00 2013A 2014A 2015F 2016F Gross Debt to Equity (LHS) 2017F Asset Turnover (RHS) Capital Expenditure Rp 4. 0.61x 3.0% 2013A 2014A 2015F 2016F Company Background Indocement (INTP) is the most profitable cement producer (highest margins) in the sector. Despite the gallant effort from the government to speed up the process.000. Balance Sheet: Strong balance sheet for future expansion. Its market leader status in Java has been snatched by Semen Indonesia (SMGR IJ) since 2014.06 0.0 21.7 0.0 Competition intensifies in Java.8 0.04 0.0 +2sd: 20. DBS Vickers. and a profitable Ready Mix Cement (RMC) business. Further price regulation by the government will negatively affect cement producers’ profitability.000.2 +1sd: 4. Given the competitive market.500. 1.0 2.2 4.0 ‐1sd: 14.7 0.8 0. INTP’s balance sheet has been impeccable with near-zero interest-bearing debt since 2008. It sells cement under the “Tiga Roda” brand. infrastructure development realisation has been slower than the street's lofty expectations.0% 15.2 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Source: Company. AllianceDBS Research ASIAN INSIGHTS Page 14 VICKERS SECURITIES .08 0. The new government surprised the market in early 2015 by instructing state-owned cement producers to cut cement price by 4-5% per bag.000.7 +2sd: 4.0 0. Strong operational cash flow generation and an abundant cash position will allow INTP to self-finance its future capex.

0 5.0 NM 43.0) 11.2 17.0 790 0.6 5.0 5.0 31.0 15.516) (3.6 23.331) 0.0 5.046 2.0 NM Growing RMC business Expect margins to decline further as competition intensifies Source: Company.0 0.1 19.0 NM 43.189 997.293 2.4 29.0 6.680) 5.0 5.642 958.0 6.160) 7.4 22.4 15.0 0.2 0.3 NM 44.265 36.0 4.8 1.064 5.00 0.996 (10.705 6.364 21.052 982.142 5.0 0.8 15.997 (3.450 36.0 471 0.739 116 (1.790 (1.5 2.8) 6.087 (3.4 1.255 156 (955) 17.0) 5.2 5.8 23.5 66.0 29.0 23.385 4.6 25.0) 0.987 128 27. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) 2013A 2014A 17.0 (3.0 15.480 8.0 4.9 22.0 28.2 5.0 27.9) (16. DBS Vickers.0 18.0 2.450 162 28.8) (2.037) 8.6 8.0 0.785 19. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 15 .010 6.0 513 0.0 0.251) 16.732 18.148 1.0 2.267 152 31.0 0. Key Assumptions FY Dec Domestic Sales Vol ('000 tones) Domestic ASP/tonne (in Rp) EBITDA margin (%) Segmental Breakdown FY Dec Revenues (Rpbn) Cement Ready Mix Concrete Aggregates Other Businesses Total Operating profit (Rpbn) Cement Ready Mix Concrete Aggregates Other Businesses Total Operating profit Margins Cement Ready Mix Concrete Aggregates Other Businesses Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except.0 488 0.3 20.275 18.4 70.4 70.9 15.557 179 (1.1) 9.4 17.233) 5.0 5.0 0.0 18.3 32.011.1 25.326) 5.2) (13.253) 18.7 20.897) 8.784 17.9 15.954) 9.2 (9.139 (86.854 121 24.0) 0.467 (3.906 100 25.069) 19.0 31.837 45.0 5.0 0.0 664 0.975 4.2) (16.2 7.0 27.0 2013A 2014A 2015F 2016F 2017F 17.1 NM 45.026 (11.104 34.960 32.310) 0.0 (0.3 26.6 6.9 70.0 6.4 6.701 2.786 (1.623) 5.0 4.041.0 0.697 2.0 0.157 19.4 15.073 (3.583) (2.0 26.7 5.612 1.0 17.691 (10.6 0.010 5.0 4.695 (1.455 6.0 15.0 32.271 5.4 94.1 4.Company Guide Indocement Tunggal P.036 3.4 29.0 2015F 2016F 2017F 16.996 18.364 (10.110 (1.705 4.026 6.691 19.091 21.795 19.385 5.209) 18.9 27.405) 0.142 130 26.455 4.0 18.157 (10.910) 9.655 (2.038 206 (1.595 (1.0 5.930 43.5 1.0 6.1 2.092) 4.0 4.6 46.906 5.0 24.7 26.819 135 (1.271 6.0 32.0 26.4 14.9 2013A 2014A 2015F 2016F 2017F 18.975 89.

0 1.7 1.481) 2.3 0.5 1.7) (7.0 1.8) (27.174 0.447 (337) 0.9 3.449 1.7) (31.0 31.3) 5.026 4. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except.161.365 93.144 0.066 (782) 1.0 Balance Sheet (Rpbn) FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets 9.129 16.2 1.5 26.0 30.4 28.7 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 1Q is the seasonally weakest quarter Near-zero debt since 2008 Strong net cash position Source: Company.556 Non-Cash Wkg.466 (320) 0.666 2.8 6.146 1.7 3.0 655 7.1 13.373 46.287.0 2.0 655 8.809 544 31.2 0.0 1.1 3.822 (6.825 2.9 29.4 43.885 0.829 (3. DBS Vickers.9 29.474 2.146 1.476.8 47.3 0.132 0.2) 45.565 76.635 7.664 2.001 1.2 12.944.144 (786) 1.206 1.00 183 0.2 4.0 764 24.0 29.8 58.758 (629) 1.400) 1.4 55.607 12.375 1.754 0.1 0.285 (14.8 28.206 1.0 6.607 0.519 259 26.524) 2.570 11.3 CASH CASH 4.671 494 28.7 4.592 1.709 1.0 1. 0.511 12.0 1.0 764 24.2 28.5 58.554 (348) 0.0 7.587 497 29.284 1.305 0.0 1.9 13.595 1.0 26.5 45.571 5.499 76.349 8.132 16.746 4.110 1.5 CASH CASH 4.3 (12.0 797 22.6) 24.2 64.1 25.885 14.0 655 11.0 28.588 0.668 (2.025 (470) 0. & Liab.275 0.5 CASH CASH 2.6 4.555 2.00 7.6 53.672 76.928 (695) 1.8 26. Capital Net Cash/(Debt) 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) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) 1.110 1.9 (25.0) (12.00 85.1 24.0 14.0 1.00 177 0.947 30.1 5.556 ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap.0 0.547 (2.236 (273) 0.305 0.9 57.9 CASH CASH 3.0) 6.5 28.011 (2.233 43.5 59. Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper.551 2.208 51.0 1.555 1.0 1.707 18.0 28.180 47.8) 4.795 45.2 60.090) 2.707 0.2) (11.0 32.0 1.425 463 28.328 (2.0 764 25.7 63.602.256 1.0 1.465 4.8 59.Company Guide Indocement Tunggal P.0 963 963 1.695 1.202 0.1 19.6 2.785 0.1) (13.253) 1.3 1.6) (6.739 (944) 1.870 1. EBITDA 1Q2015 2Q2015 3Q2015 4.0 655 8.0 8.7 3.7 44.00 170 0.467 7.0 764 27.358 9.2 (3.0 1.3 24.6 11.0 1.925 47.3) (26.502 48.571 76.0 0. AllianceDBS Research ASIAN INSIGHTS Page 16 VICKERS SECURITIES .9 4.2 CASH CASH 3.00 180 0.0 456 12.

567 (3.0 0.000) (3.0 0.0 (3.0 (168) 0.0 0.0 5. 23485 21485 2 4 1 3 19485 8 5 Dat e Closing Pric e T arget Price Rat ing 1: 14 Apr 15 22650 20200 F ULLY V ALUED 2: 04 May 15 22800 20000 F ULLY V ALUED 3: 27 May 15 22100 20000 F ULLY V ALUED 4: 08 J un 15 21425 20000 F ULLY V ALUED 5: 10 Aug 15 19800 20000 F ULLY V ALUED 6: 29 Sep 15 16300 14600 F ULLY V ALUED 7: 13 Oct 15 17525 14600 F ULLY V ALUED 8: 02 Nov 15 18425 14600 F ULLY V ALUED 17485 6 7 15485 Mar-15 Jul-15 Nov-15 Mar-16 Not e : Share price and Target price are adjusted for corporate actions.No.0 221 0.0 5.595 810 0.786 949 0.00 (3.0 0.0 (2.0 0.707) 414 2.0 (2.0 0.0 0.968) 0.0 0.286 (2.790 878 0.Cap.0 0.463 527 5. & Amort.0 0.500) (4. Source: DBS Vickers.0 (3.0 160 (563) 5. & JV Inc/(loss) Chg in Wkg.0 (551) 1.0 0.(net) Other Invts.0) (767) 5.433 542 5.005) 0.121 1.500) (3. AllianceDBS Research Target Price & Ratings History 25485 Rp S.0 0.0 (3.0 9.419 (2.(net) Invts in Assoc.405) 0.0 (41.0 0.0 (4.119) 0. Tax Paid Assoc.396) (3.0 (3.119) 0.0 0. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 17 .345 (3.0 0.0) 0.0 0. Cash Flow Statement (Rpbn) FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit Dep.0 0.0 0. DBS Vickers.0 0. Other Operating CF Net Operating CF Capital Exp.429 927 6.0 (1.695 890 0.110 1.0 (2.0 0.0 0.968) 0.0 0.030 0.658) (49.Company Guide Indocement Tunggal P.468 757 6.005) (1.500) 0.0) 0.340) 1.0 0.0 (284) 1.000) 0.0 5.0 0.070) 0.366) 77.0 0.496 (3.500) 0.313) (53.0 0.0 (3.972) 1.0 (1.558 697 Strong operational cash flow to cover future expansion capex Source: Company.0 (118) 0.0 0.070) 0. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp) 6.

521 4. continuously low commodity prices and the more stable IDR resulted in 2%/()2. Key Risks to Our View: Significant delays in new players’ greenfield cement plants. Sumatra and Sulawesi remains as palpable growth driver.99) Price Target : Rp8. AllianceDBS Research.6 2017F 31.3 CASH 17.0 195 16.8% in FY16/17F.3% earnings changes in FY16/17F. Sumatra and Sulawesi cement sales showed much promise (+14. Our current estimates are still one of the lowest in the street.579 60.0 135 12.9 CASH 15.2 779 779 2 779 312 4.1 0.932 60. given its long and strong presence in three key regions Java.2 10.0 40.480.761 7.P ASIAN INSIGHTS ed: TH / sa: MA Maintain FULLY VALUED call. 43% and 64% market shares in Java.800) Potential Catalyst: Rebound in property presales and better execution from nationwide infrastructure development Where we differ: Having one of the lowest estimates in the street Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 edward.5 5 771 B: 19 2 831 S: 5 (2) 965 H: 11 Source of all data: Company.454 13. The three brands under SMGR command 38%.975 4.0 75 6.7% y-o-y) and Kalimantan (25.7 9.to 4-year boom (2010-2013).798 / 4.200 (20% downside) (Prev Rp7.0 Mar-12 Mar-13 Mar-14 Semen Indonesia (LHS) Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex. Slight adjustment in margins considering higher bulk portion.480. Adjustment in volume bumped revenue estimate by 4. At A Glance Issued Capital (m shrs) Mkt.779.7 12. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Mar-15 55 Mar-16 Relative JCI INDEX (RHS) 2014A 26.521 (18.85% of domestic cement sales.987 8. Sumatra and Sulawesi – which account for c.8 3. Cap (Rpbn/US$m) Major Shareholders (%) Govt.0 95 8.160 4.621 2.4 8. SMGR’s Jan-16 cement sales grew 2. However.851 4. Plans to expand to other areas are still in preliminary stage.480.dbsvickers.3 3.4 13.0 2. Sumatra and Sulawesi accounted for 22% and 12% of SMGR’s domestic cement sales by volume respectively.566 3.070 10. Sumatra and Sulawesi respectively.2 13.928 13. The planned entry into Aceh (with JV) and Kupang are still a long way to go.1%/2. of Indonesia Free Float (%) 3m Avg.480.5 8.4%).7 2.480.621 4.566 5.295 7.5% as FY15 achievement exceeded our expectations.948 7.3% y-o-y). at (-)1SD of 10-year mean forward PE (similar level it traded at in 2004 when utilisation level was low).com Tjen San Chong +603 2604 3972 tjensan@alliancedbs.066 7.6% and +26% y-o-y respectively) and helped to support group cement sales.480.0 115 10. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. Bloomberg Finance L. and lift utilisation rates.2 804 804 3 804 322 5.480.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex.486 5. Valuation: Our target price of Rp8.3%/3.16m tonnes (below industry volume growth of 4.9 9. with noticeable weakness in Java (-1.2 3.770 4.421 12.JK DBS Group Research .0 2. We expect property presales to recover moderately going forward after a 3.427 5.091 5. DBS Vickers. But a sharp recovery in property presales would pose an upside risk to our cement volume sales assumptions.5 CASH 24. This would reduce competition in SMGR’s strongholds. SMGR leads in the domestic cement market with 43% market share.0 215 18.480.250 (JCI : 4. Recovery in property presales.0 VICKERS SECURITIES . Daily Val (US$m) ICB Industry : Industrials / Construction & Materials 5.2 3.0 5. Equity 2 Mar 2016 FULLY VALUED State-owned producer supremacy Last Traded Price: Rp10.6 938 938 4 938 375 4.8) 762 762 (19) 762 305 4.0 16.3 8.9 10.0 175 155 14.200 is pegged to 10. reduce the severity of competition from new players (better pricing power for incumbents).9 2016F 29.2% y-o-y to 2.770 3.7 7.7 Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs: 2015A 26.com Price Relative Rp Relative Index 20.811 6.1 1.Indonesia Company Guide Semen Indonesia Version 2 Refer to important disclosures at the end of this report | Bloomberg: SMGR IJ | Reuters: SMGR.tanuwijaya@id. We adjusted FY16/17F domestic sales volumes by 3. The property sector remains the major cement consumer in Indonesia.5x FY16F EPS.0 7.

100 7. The skewed supply-demand imbalance will also see utilisation rates of incumbent players remain depressed.0% 25. 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.450 25.65% of its COGS is transacted in USD. exposure to foreign debt taken for expansion in Vietnam would also directly raise interest expense and reduce earnings by 0. We expect SMGR’s cash cost per tonne to increase by 5. 2014A 27.5% average in the past decade). while c.0% 5.500 Shift to bulk segment will pressure margins. 2015A 14. We forecast a modest 3% CAGR in ASP/tonne between 2015 and 2017F. Approximately 40% of SMGR’s cash cost is for energy.0% 2013A 2014A Total Revenue 2015A 2016F 2017F Revenue Growth (%) (YoY) Market share trend in domestic market 47% 46% 45% 44% 43% 42% 41% 40% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FY16F FY17F Source: Company.7 27. 26. In that period. which expects modest growth (in line with Indonesia’s real GDP growth) for the next two years as the country is entering a normal growth state.0 2013A 2014A 2015A 2016F 2017F Revenue trend Rp bn 30. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 19 .0 24.5m tonnes of effective capacity coming on stream until 2017.065.760 1.000 213. SMGR leads in the domestic cement market with 43% market share. DBS Vickers.000 0 2013A 2014A 2015A 2016F 2017F EBITDA margin 33. we expect SMGR’s utilisation rate to drop from 90% in 2014 to 82% in 2017F.2 13. 25.85% of domestic cement sales.Company Guide Semen Indonesia Domestic Sales Volume 29.8 27.077 1. This is in line with our industry demand forecast.5% if the IDR depreciates by another 10% against the USD.000 15. SG&A expenses are expected to stay at 18% of revenue (vs 16. In addition.700 0 2013A 2016F 2017F Domestic ASP/tonne 1.969 22.000 639.013.3% CAGR.0% 30.400 3. This should prevent EBITDA margins from falling further (see chart).200 904.900 Earnings Drivers: Strong presence in three regions to drive top line.6 20. We expect SMGR’s sales volume to expand at a 5. 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.000 10. 6.000 25. The benefits of lower coal and oil prices and the more stable IDR against the USD help to push down cash cost components.542 Limited price upside due to competition.354 33.000 20.1 30.000 426.0% 20.173 852.6 25.274 18. In anticipation of 6.034 CRITICAL DATA POINTS TO WATCH 25.5 0.0% 5. given its long and strong presence in three key regions .0% 10.Java.233 947.7 Low capacity utilisation rate will cap SG&A expenses (as % of revenue).800 11.7% CAGR over 2015-2017F.044. Sumatra and Sulawesi – which account for c.000 984.7 Cost savings from efficiency and continuously low commodity prices help to alleviate more margin pressure.000 0 0.000 15.

SMGR has been in a net cash position in the past decade (except in 2012 when it took on new loans for the TLCC acquisition). Share Price Drivers: Positive progress in nationwide infrastructure development.3 8. +1sd: 5.0 1.5 +2sd: 6.3 Avg: 16.5 Company Background Semen Indonesia (SMGR) is the largest cement producer in Indonesia with over 40% market share.25 0.8 0. It has production facilities on three key islands (Java.0% 15.Company Guide Semen Indonesia Balance Sheet: Exposure to USD debt.000. Sumatra and Sulawesi) and solid distribution channels. Slower-than-expected much heralded infrastructure project rollout. thanks to strong operational cash flow and good management of expansion capex.5 ‐2sd: 2.3 16.08x 5.000. As of Dec 2015. hurt SMGR’s utilisation and profitability. SMGR’s vision to expand overseas presents potential country and political risks. and consequently.8 0. we expect lower dividend payouts and yields going forward.0 5. Additional risks from overseas expansion.01x 1. Good progress and faster infrastructure budget absorption should imply better cement demand and improvement in SMGR’s utilisation rate and subsequently its profitability.9 0.0% 2013A 2014A 2015A 2016F 2017F Forward PE Band (x) (x) 22. Leverage & Asset Turnover (x) 0. Monthly cement sales data released by the Indonesia Cement Association (ASI) is a leading indicator of SMGR’s stock price direction.03x 2. DBS Vickers. 0. which enables it to command high market shares throughout Indonesia.0 2.0 4.5 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Source: Company.000.3 ‐2sd: 11.7 0.07x 4.10 0.15 0. project rollouts have been slower than the street's lofty expectations.9 0. The new government had surprised the market early this year by instructing state-owned cement producers to cut cement prices by 4-5% per bag.9 0.5 ‐1sd: 3.0 3.8 0. SMGR has distributed 45-55% of net profits over 2006-2013.8 0.00 2013A 2014A 2015A 2016F Gross Debt to Equity (LHS) 2017F Asset Turnover (RHS) Capital Expenditure Rp 6. 0. Slower execution will directly affect cement demand growth. Further price regulations could hurt profitability. SMGR has exposure to foreign debt which it took on to expand into Vietnam in 2013.8 0.0 2013A 2014A 2015A 2016F 2017F Capital Expenditure (-) ROE (%) Expect lower dividend payout.3 +2sd: 21.3 +1sd: 19x 18.3 ‐1sd: 13.4x 14.0% 10.9x 12.3 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 PB Band (x) (x) 6.7 0.0 Cement sales. foreign debt made up about one-third of SMGR’s total long-term debt.0% 0.000.05 Net cash position provides buffer for future expansion.3x 10.5 Avg: 4.7 0.20 0. SMGR has expanded into Vietnam (after acquiring a stake in Thang Long Cement Company in 2013) and is eyeing neighbouring countries such Myanmar and Bangladesh. Following recent talks of cutting dividends from state-owned enterprises (SOE) to spur infrastructure development. 5. Despite gallant efforts by the government to speed up the process.000.0% Key Risks: Further price control by government.0% 20.05x 3. 25.000. AllianceDBS Research ASIAN INSIGHTS Page 20 VICKERS SECURITIES .5x 20. Further weakness in the IDR will inflate SMGR’s debt position.

354) 0.780) 11.0 4.522 26.972 6.8 38.0) 0.0 43.0 7.0) 0.0 (97.0 6.8 20.9 12.354 947.948 (16.0 (7.9 16.646 (4.370 8.032 46.877 156 6.6 11.0 40.8 21.5) (15.8 15.0 6.501 (13.5 21.8 15.0 17.0 (177) 0.566 5.0 (129) 0.7 28.517) (8.8 10.2 9.747) 5.0) 0.0 4.013.223 29.091 (1.5 11.2) (18.302) 10.077 31.0 0.8) 7.9 28.160 (1.4 (0.1) (10.9 0.1 13.944 (3.599 (4.0 35.621 4.0 27.566 8.8 2.0 0.0 28.566) 16.032 6.1 40.1 Revenues (Rpbn) Cement Others Total Operating profit (Rpbn) Cement Others Total Operating profit Margins Cement Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except.335 652 25.811 25. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Cement contributes 98% of SMGR’s revenue Expect margins to decline as competition intensify Source: Company.3 3.0 5.0 (152) 0.998 (26.5 15.5 45.987 26.0 45.066 31.1 19.026 1.3 2.0 15.920 (1.039 30.8 19.760 26.2 3.295 26.770 7.972) 6.0 41.621 7.0 5.7 22.751 148 5.0) 26.542 33.2 15.1 10.253) 6.899 46.969 984.8 17.0 26.2 44.Company Guide Semen Indonesia Key Assumptions FY Dec 2013A 2014A 2015A 2016F 2017F Domestic Sales Volume Domestic ASP/tonne EBITDA margin 25.0 4.815) 6.091 24.0 38.6 24.0 19.3 40.173 25.521 4.274 1.427 29.1 2.958 990 28.6 2013A 2014A 2015A 2016F 2017F 24.078 (124) 5.6 14.285 (5. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 21 .066 (17.557) 10.0 25.034 1.044.954 202 32.670 1.770 4.396) 5.0 Segmental Breakdown FY Dec 2013A 2014A 2015A 2016F 2017F 24.987 (15.0) 7.954 5. DBS Vickers.4 43.059 164 6.0 34.645) 6.450 904.8 20.5 37.9 20.223 46.325) (4.152 370 26.9 40.761 6.0 71.0 29.899 6.972 91.8 39.0 39.5 21.370 5.0) 22. DBS Vickers.9 16.3 4.388) 11.851 (1.521 7.723) 12.4 25.0 (142) 0.0 21.6 (0.9 (19.948 29.486 31.0 5.9 14.233 28.0 15.7 17.0 25.975 (1.9 19.00 0.038 (5.761 (19.099 26.6 15.0 42.0 5.1 18.3) 3.

0 3.0) 1.163 3.310 30.954 3.1) (19.0 2.0 0.328 18.815 2.00 (70.0 5.447 3.833 (4. Capital Net Cash/(Debt) 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) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) 1Q is the seasonally weakest quarter About one-third of LT debt is in foreign currency High capex expansion to put SMGR under net debt this year Source: Company.2 17.2 24.9 Balance Sheet (Rpbn) FY Dec 2013A 2014A 2015A 2016F 2017F Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets 18.0 698 46.0 145.315 606 24.3 64.0 1.5) (0.4 6.00 7.992 2.9 (11.997 774 650 40.9 1.490) 3.420 1.242 508 20. 321 2.7 1.00 1.478 1.4 0.00 0.4 18.307 139 3.452 3.1 (17. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except.0 2.0 1.7) (16.5 0.0 (49.013 1.5 19.0 16.9 1.323 3.139 960 34.646 2.781) 2.437 5.6 40.154 1.9 0. DBS Vickers.0) 1.0 8.412 1.2 379 (329) 46.0 2.137) 1.340 (3.341 2.626 0.078) 1.6) (19.9 70.6 1.6 CASH CASH 75.0 1.190 1.204 6.0) 0. EBITDA 2Q2015 3Q2015 4Q2015 7.310 958 29.0 1.1 CASH CASH 97.822 580 41.323 1.133 (1.935 921 30.507 (1.8 15.5 86.3 6.4) 2.148 (1.6 41.912 20.300 (3.213 2.301 504 34.0) 0.078 4.967) 2.9 6.850 6.016 44.854) 2.0 56.1 55.0) 1.1 5.Company Guide Semen Indonesia Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2014 1Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper.177 643 44. AllianceDBS Research ASIAN INSIGHTS Page 22 VICKERS SECURITIES .8 20.4 23.297 (297) (5.232 1.638 (4.3 40.915 4.0 23.0) 0.7 20.3 CASH CASH 71.0 0.749 (432) 6. & Liab.0) 0.478 2.309 58.00 (14.0 2.1 CASH CASH 156.6 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Non-Cash Wkg.1 19.2 1.7 1.032 2.0 (59.560 (1.447 4.897 (417) (3.481 8.3 0.199) 1.3 93.9 467 587 46.447 3.156 958 26.304) 1.021 41.0) 13.464 958 32.221 0.627 3.8 0.307 25.153 28.501 (307) (4.7 1.5 80.309 3.310 139 4.250 1.5 1.153 139 4.6 30.2 16.822 2.6) 9.812 3.409 3.9 72.021 38.0) 995 995 2.844 103 10.8 38.978 2.4 89.912 82.8 21.120 2.190 2.474 (3.0 37.483 3.700) 3.0 78.714 0.0) (16.916 197 30.8 2.0 1.309 (5.190 1.635 42.8 38.0 2.013 2.0 92.0 1.417 7.034 6.8 18.863 0.8 0.333) 1.997 ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap.800 (15.0) 7.6 1.5 1.2 15.446 (1.544 594 38.304 (290) (2.00 5.7 37.168 0.

0 (635) 442 6.500) 0.0 (1.211) (69.851 1.0 (432) (2.0 (5.0 (962) 1.0 0.117 591 7.0 (872) 1.0 0.0 0.091 1.558) 0.0 1.0) (2.0 0.0 (1.037 358 5.264 (3.0 (577) 143 6. AllianceDBS Research Target Price & Ratings History Rp 14840 13840 1 4 2 12840 3 11840 10840 8 9840 6 7 S.324) 0.000) 0.0) 0.0 0.0 0.0 (292) 0.588 0.0 0.809) 154 0.071 466 Strong operational cash flow to cover future capex Source: Company.000) (1.0 0.Cap.0 (43.0 0.0 0. Dat e Closing Pric e T arget Price 1: 03 Mar 15 14825 2: 14 Apr 15 12850 12200 F ULLY V ALUED 3: 27 May 15 13175 12000 F ULLY V ALUED 4: 08 J un 15 12975 12000 F ULLY V ALUED 5: 10 Aug 15 9700 12000 F ULLY V ALUED Rat ing 12200 F ULLY V ALUED 6: 29 Sep 15 9100 7800 F ULLY V ALUED 7: 13 Oct 15 10150 7800 F ULLY V ALUED 8: 30 Oct 15 9800 7800 F ULLY V ALUED 5 8840 7840 6840 Mar-15 Jul-15 Nov-15 Mar-16 Not e : Share price and Target price are adjusted for corporate actions.0 (131) (2.(net) Invts in Assoc.0 (58.0 (323) (2.226) 0.984) 0.047 (2.782 (5.160 1.127 0.0) (2.675) (2.658) 0.500) (1.0 0.070 1.881) (2.528 0.289 (5.721 (2.341 0.Company Guide Semen Indonesia Cash Flow Statement (Rpbn) FY Dec 2013A 2014A 2015A 2016F 2017F Pre-Tax Profit Dep.0 0.849) 154 0.0 0.240 702 5. Source: DBS Vickers.920 1.No. & Amort. & JV Inc/(loss) Chg in Wkg.0 (88.0 0. DBS Vickers.0 1.694) 0.0 (3.0 (424) (5.0 855 1.0 0.975 1.0 1.654) 0.0 0.(net) Other Invts.0 0.592) (2.544) 0.0 0.0 0. Other Operating CF Net Operating CF Capital Exp.048 1.0 5.0 0.024 132 6.135 100 7. AllianceDBS Research ASIAN INSIGHTS VICKERS SECURITIES Page 23 .427) (500) 0.0 6. Tax Paid Assoc.453 0.0) 0.168) 0. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp) Free CFPS (Rp) 6.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. Any assumptions made in this report that refers to commodities. but we (which collectively refers to DBS Bank Ltd. forecasts. opinions. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. opinions. has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. its respective connected and associated corporations and affiliates (collectively. does not have its own investment banking or research department. ratings or risk assessments stated therein. certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. in part or in whole. report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd. The research set out in this report is based on information obtained from sources believed to be reliable. ratings or risk assessments or their underlying assumptions will be achieved. along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. forecasts. with identifiable catalysts within this time frame) * Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by PT. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department. ratings or risk assessments were based will not materialize or will vary significantly from actual results. DBS Vickers Securities (USA) Inc ("DBSVUSA")"). The information in this document is subject to change without notice. forecasts. the “DBS Group”)) do not make any representation or warranty as to its accuracy. opinions. It can be expected that one or more of the estimates on which the valuations. -10% to +10% for large caps) FULLY VALUED (negative total return i. estimates. estimates. DBS Vickers Securities Indonesia ("DBSVI") does not have a proprietary position in the securities recommended in this report as of 1 March 2016. opinions. ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. forecasts. or will be. The analyst(s) also certifies that no part of his/her compensation was. forecasts. financial situation and the particular needs of any specific addressee. estimates. is. PT. and there can be no assurance that future results or events will be consistent with any such valuations. Any recommendation contained in this document does not have regard to the specific investment objectives. are for the purposes of making forecasts for the company (or companies) mentioned herein. As of 2 March 2016. its respective connected and associated corporations.Industry Focus Indonesia Cement Sector DBS Vickers recommendations are based an Absolute Total Return* Rating system. Any valuations. its accuracy is not guaranteed. do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities Indonesia. The DBS Group. or indirectly. with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps. opinions. affiliates and their respective directors. directly. opinions. estimates. and may effect transactions in securities mentioned herein and may also perform or seek to perform broking. opinions. defined as follows: STRONG BUY (>20% total return over the next 3 months. and there is any assurance that future results or events will be consistent with any such valuations. ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities). indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. Therefore.e. >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps. The DBS Group accepts no liability whatsoever for any direct. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. estimates. the inclusion of the valuations. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report. the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s). that: (a) (b) such valuations. forecasts. employees and agents (collectively.. estimates. The DBS Group may have positions in. Opinions expressed are subject to change without notice. a U. The valuations. nor has it participated in any public offering of securities Page 24 . 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