Nomura has initiated its coverage of the Indonesian cement sector with Buy ratings on Semen Gresik and Holcim Indonesia, and a Neutral on Indocement.
Analysts at the bank see the cement sector as a key beneficiary of Indonesia’s infrastructure development, which will drive volume growth, while near-term selling prices are set to increase.
Over the next three years, Nomura expects the three listed cement companies to increase their capacity by a combined 23% from the current capacity of 46Mta to slightly more than 57Mta. Semen Gresik has the most aggressive expansion plan, which aims to increase capacity by almost 20% from the current level of 20Mta to 25Mta in 2012, with commercial operation to start in the early part of the year. Holcim Indonesia is currently constructing its plant expansion in East Java that will see its operating capacity increase by 20% from the current 9Mta to 11Mta in 2013.
While Nomura expects cement companies to increase selling prices by about 5% this year after no price adjustments in 2010, production costs remain a key operating risk with coal prices set to rise further in 2011.