Introduction

Semen Indonesia (SMGR IJ), the largest cement producer in Indonesia with a dominating market share of more than 50%, has been the focal point of UOB Kay Hian’s latest analysis. This report dives deep into the company’s operational performance, financial outlook, and market dynamics while delivering a clear recommendation on investment action for 2025.

Stock Recommendation: A Downgrade to “SELL”

The report highlights a significant downgrade of Semen Indonesia’s stock rating to “SELL,” with a revised target price of Rp2,540, reflecting a potential downside of 11.8% from the current share price of Rp2,880. This downgrade comes in light of various challenges the company is facing, primarily driven by reduced government infrastructure spending and rising competition.

Declining Infrastructure Spending and Its Impact

The report underscores a major blow to the bulk cement segment due to a substantial cut in Indonesia’s infrastructure budget. The government has reduced its infrastructure allocation by 26.3% year-on-year to Rp311.5 trillion in 2025. Specifically, the Ministry of Public Works and Public Housing faces an 80% budget reduction, leaving it with just Rp22 trillion. Bulk cement sales, which represent 30% of Semen Indonesia’s total sales, are expected to decline by 13.1%, contributing to an overall sales volume drop of 1.8% in 2025.

In response to this domestic shortfall, the company plans to increase its export volumes to 6.0-6.5 million tonnes by targeting new markets in Latin America, the Philippines, and Taiwan, as well as improving shipment facilities in Tuban. However, stiff competition from China remains a significant hurdle for export growth.

Domestic Sales Volume and Seasonal Challenges

In 2024, Semen Indonesia’s domestic sales volume declined by 5% year-on-year, underperforming the broader industry, which saw a 3.7% decline. The company attributes this to an increase in average selling prices (ASP) for bag cement, which dampened demand. The first quarter of 2025 is expected to remain weak due to the rainy season, low disbursement of construction budgets, and the fasting month leading up to Eid Al-Fitr celebrations in late March.

3 Million Housing Programme: A Mixed Bag

The government’s ambitious 3-million-housing-per-year programme offers some promise for cement demand. The initiative includes constructing 1 million landed houses, 1 million apartment units, and renovating 1 million homes annually, potentially driving up cement demand by approximately 4 million tonnes. However, the profitability of this project, which includes significant funding from Qatar for 6 million homes, is not expected to materialize until 2026. Semen Indonesia plans to implement a direct selling mechanism to improve margins.

Financial Performance and Future Projections

UOB Kay Hian projects a grim financial outlook for Semen Indonesia over the next two years. Key financial metrics for 2024 and 2025 are as follows:

• Net profit is forecasted to decline by 76.1% in 2024 to Rp771 billion and by another 23.2% in 2025 to Rp592 billion.
• EBITDA is expected to drop to Rp5,173 billion in 2025, reflecting a 34.5% decline from 2023 levels.
• Revenue for 2025 is projected at Rp35,774 billion, down 1.7% year-on-year.
• Net margins will shrink to 1.7% in 2025, compared to 5.6% in 2023.

The company plans to stabilize its cost of goods sold (COGS) per tonne and slightly increase ASP by 1.5% in 2025. However, these efforts are unlikely to offset declining sales volumes and rising costs.

Valuation and Investment Outlook

Semen Indonesia’s valuation is described as undemanding, trading near -2 standard deviations (SD) to its five-year mean EV/tonne. Despite this, the industry outlook remains uncertain due to weak purchasing power, aggressive competition, and reduced infrastructure spending. These factors collectively justify the downgrade to “SELL.”

The target price of Rp2,540 is based on a valuation of -2 SD to the five-year EV/tonne of Rp680,247 or an implied -3 SD to the 2025 estimated EV/EBITDA of 4.5x.

Conclusion

While Semen Indonesia has outlined plans to mitigate the challenges it faces, including boosting exports and participating in the 3-million-housing programme, the immediate outlook remains bleak. With declining domestic and export volumes, rising costs, and reduced government spending, the company’s profitability is under significant pressure. UOB Kay Hian’s recommendation to “SELL” reflects these challenges and advises caution for investors considering this stock in 2025.