FY2010- SMGR/INTP in-line, SMCB below, February +7%! - Credit Suisse

1) SEMEN GRESIK (SMGR): AIC Takeaways reiterates Buy SMGR as Sector Top-pick!
iSay: At Rp9,550/share, SMGR is trading on 14.8x 2011F PER, 9.3x 2011F EV/EBITDA and implying 15% upside to DCF R11,000/share. We maintain Buy SMGR as Sector Top-pick!
· Ella Nusantoro (Daily attached): AIC Takeaways recently: 1. Selling prices continue to be adjusted in line with the rise of input cost (particularly on coal). Average price increase around 2% YTD with expectation of 3% conservatively this year but it is not limited on energy costs. 2. Strategy is to maintain market share at around 43-45% despite of increase in capacity. 3. M&A – depends on whether the target company can bring a synergy (added value) to Semen Gresik. Requirement is to own majority stake. 4. Progress on new cement and power plant projects – Tuban IV at 78.4%, Tonasa V at 79.25% and power plant at Tonasa at 16.1%. The electricity for new Tonasa plant will be supplied from PLN (state-owned electricity company) at US 9¢/kwh while awaiting for the completion of the power plant.
· Semen Gresik (previous Daily) is the only cement company that is constructing new plants, which should commence production by early 2012, adding about 5 mtpa (2.5 mtpa each in Tuban and Tonasa) to its current capacity. This will raise its total capacity to 25.1 mtpa by the end of 2012, or 43% of the industry capacity. We maintain our OUTPERFORM rating on Semen Gresik and it remains our preferred pick in the sector on valuations. Our DCF-based target price of Rp11,000 is based on our WACC assumption of 13.5%. Our target price implies a 10.8x 2011E EV/EBITDA and EV/capacity of US$341/t, on a 15% estimated earnings CAGR over 2011-13E.

2) INDOCEMENT (INTP): FY2010 in-line strong results – Hold & PREFER SMGR
iSay: At Rp16,600/share, INTP is trading on 16.8x 2011F PER, 10.5x 2011F EV/EBITDA and implying 5% upside to DCF Rp17,400. While INTP deserves a Management Premium being lowest cost producer, we continue to PREFER SMGR on valuation!
· Ella Nusantoro (Daily attached): Indocement published 2010 financial results in line with our estimates. Revenue rose 5% YoY to Rp11 tn, underpinned from 3% volume growth YoY and 1.4% ASP increased YoY, with net profit rising 17% YoY to Rp3.2 tn. Operating margin improved to 36.1% from 34.9% and net margin was up 300 bps to 29%. In 4Q10, revenue rose 10% QoQ (-4% YoY), driven by strong volume growth (+ 6% QoQ, -8% YoY) while ASP rose 2% QoQ. Operating margin improved to 34.5% from 33.6% in 3Q10, and net margin stood at 27.8%, from 27% in 3Q10. As at the end of FY10, the company was in a net cash position; its net cash amounted to Rp4.5 tn. We remain NEUTRAL on the stock.

3) HOLCIM INDONESIA (SMCB): FY2010 below expectation – Hold & PREFER SMGR
iSay: At Rp1,980/share, SMCB is trading on 14.8x 2011F PER, 7.3x 2011F EV/EBITDA, and implying 21% upside to DCF Rp2,400/share. I continue to like Top-2 largest producers and therefore we continue to PREFER SMGR on valuation and INTP that deserves Management premium as a part of Global Majors!
· Ella Nusantoro (Daily attached): Holcim Indonesia reported FY10 net profit of Rp828 bn (-8% YoY), slightly below our estimates and consensus. Revenue was flat at Rp6 tn, on the back of ASP being lower by 2%, although it booked 6% higher domestic sales volumes. Opex rose 8% YoY, hence operating profit declined 5% YoY to Rp1.3 tn and margin declined to 22.4%, from 23.5% in FY09. In 4Q10, its volumes grew 19% QoQ (-8% YoY) with ASP down 2% QoQ (+7% YoY); thus revenue rose 17% QoQ (-6% YoY) to Rp1.7 tn, accounting for 28% of FY10. Its operating margin at 22%, versus 26% in 3Q10. Net profit stood at Rp209 bn (-16% QoQ, -37% YoY).
· The company did quasi reorganisation, where it revalued its assets as at 30 June 2010, thus resulting in a positive retained earnings as at end-2010, allowing it to have a better financial position and capital structure. We remain NEUTRAL on the stock, which currently trades at EV/capacity of US$194/t with 7.4x EV/EBITDA 2011E.

4) CEMENT: Slow February due to seasonality – Java grew 11% vs 7% nationwide!
iSay: 2M2011 YTD, Java consumption was growing 11% YoY, higher than Indonesia Consumption growth of 7% YoY. We reiterate Overweight Cement Sector based on organic demand growth!
· Ella Nusantoro (Daily attached): The Indonesia Cement Association reported that February 2011 cement consumption rose 8% YoY (-7% MoM) to 3.4 mn tonnes, while exports fell 32% YoY (-14% MoM). Exports only accounted for 3% of the total production. February tends to be the weakest month for cement producers due to fewer working days as well as the rainy season.
· YTD February 2011, total cement production reached 7 mn tonnes (+6% YoY), with export declining 16% YoY and domestic consumption rising 7% YoY.
· Semen Gresik is the market share leader with 41.2%, down from 43.4% in 2M10, due to the heavy rain in its main markets (East Java, Central Java, and Sulawesi). Indocement recorded a marginal decline in market share to 30.5%, while Holcim Indonesia gained market share to 15.4% from 13.7% in 2M10.
· We continue to like Semen Gresik in the sector due to valuation as well as its ability to serve demand from outside Java, given its spread-out plant locations (Java, Sumatra, and Sulawesi).