汇丰银行-indonesia cement：switch from intp to smgr for faster recovery-20170620-hsbc

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1、20June2017IndonesiaCementEQUITIESBUILDINGMATERIALSSwitchfromINTPtoSMGRforfasterrecoveryIndonesiaIndocement’sgeographicalfootprintisfacingweakergrowthShishirSingh*andhighercompetitionincontrasttothatofSemenIndonesiaASEANMaterialsAnalystTheHongkongandShanghaiBankingCorpora

2、tionLimitedshishirkumarsingh@hsbc.com.hkWecutINTP’s2017-18eEBITDAby8%andforecastaweak+85228224292recoverywhichiscurrentlyvaluedrichlyrelativetoSMGR*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsDowngradeINTPtoReduce

3、;investorsshouldswitchtoSMGR(Buy),whichoffersafasterrecoveryatattractivevaluationsWeakerfootprintforIndocement:TherecoveryinIndonesia’scementsectorhasbeenshallowerthanexpectedsofar.Domesticvolumeshaverisen4%y-o-yin5M17comparedtoourexpectationof9%y-o-ygrowth.Excessiverainsearl

4、ierintheyeararepartlytoblamebut,moreimportantly,Indocement’s(INTP)coremarketsinWesternJavalookevenweakerthannationaltrends.INTP’sflatvolumesin5M17haven’tjustunderperformedmarketgrowthbutfadeincomparisontothoseofSemenIndonesia’s(SMGR)volumegrowthof8%y-o-y(aidedbygrowingexports

5、)duringthesameperiod.ItonlymakesitworseforINTPthatWesternJavahasseenthelargestinfluxofnewentrantswithintensecompetitiononpricing.Cut2017-18eEBITDAestimatesforINTPby8%;marginalcutstoSMGRestimates:WeakergrowthinJakarta,BantenandWestJava,whichcontributealmosthalfofINTP’ssalesand

6、arewitnessinghighercompetitiveintensity,drivesthecutinourvolumeandASPassumptions.WenowexpectINTPtoreporta7%y-o-ydeclinein2017eEBITDAasoperatingcostinflationof3%y-o-yandanASPdeclineof1%y-o-yeatintoitsmarginsjustasvolumegrowthremainssubduedatonly4%y-o-y.WemoveSMGR’sestimatesmar

7、ginallylowerbutseebettergrowthandASPtrendshelpingthecompanytoreport13%y-o-ygrowthinEBITDAin2017e.DowngradeIndocementtoReduce(fromHold);SMGRremainsBuy:EventhoughweseeasequentialrecoveryaheadforINTP,itsvaluationata2017eEV/EBITDAofalmosttwicethatofSMGRappearstoorichandhardtojust

8、ify,inourview.SMGR,ontheotherhand,isalreadydeliveringafasterrecovery