Research: Holcim - New opportunities - BUY new Target Price Rp2,060
Indonesia cement companies are making a fortune. The top 3 cement companies
control over 90% of the market means enormous pricing power. Operating margins
are the highest in Asia. The key question to ask will be how sustainable is
these margins? Looking at the industry dynamics where incremental
(small) capacity addition is still from the top 3 players and demand steady as
a base case scenario, cement companies will be able to enjoy an extended period
of high profitability. It is important to note the biggest chunk of cement
consumption is still from housing (where we think we are at the infancy of a
structural bull market - record low interest rates, the absence of leverage,
rapid urbanization, young population), blue-sky will be from the pick up from
infrastructure investments as prioritized from President SBY's second term
administration. Holcim will be the most leverage play of the three cement
companies.
