Introduction

Indonesia’s cement industry, dominated by a few key players, has been navigating challenges like oversupply, cost pressures, and intense competition. This report dives deep into the financial health, market position, and future prospects of Semen Indonesia (SMGR IJ), Indocement (INTP), Semen Baturaja (SMBR IJ), Singa Merah, and Grobogan. The analysis, prepared by PT Maybank Sekuritas Indonesia, provides a detailed examination of each company’s strengths, weaknesses, and opportunities.

Semen Indonesia (SMGR IJ): The Cement Giant in a Tough Spot

Semen Indonesia (SMGR), Indonesia’s largest cement producer, operates nine integrated plants across the country. While its extensive footprint allows for swift distribution across the nation, it has also become a double-edged sword in the current market landscape.

Financial Performance and Challenges

Despite its dominant market share of approximately 50%, SMGR has faced declining profitability. EBITDA margins dropped from their historical averages of over 20% to just 14.4% in 3Q24. The decline was attributed to surging manufacturing overhead costs, which rose by 25% quarter-on-quarter in 4Q23 and persisted through 2024.

Distribution and maintenance costs accounted for the largest share of overhead, at 35% and 23%, respectively. Additionally, non-cement business operations contributed significantly to cost pressures. SMGR’s net margin is forecasted to remain subdued at 2.9-3.4% for FY24E-26E, significantly below Indocement’s 9.5-10.4% during the same period.

Market Share Struggles

SMGR’s market share has been steadily declining, despite its acquisition of Semen Baturaja (SMBR IJ) in 2023. The acquisition added only about 2-2.5% to its market share, which stood at 49.3% in FY24E—down from 49.9% in FY22. The rise of new players like Singa Merah and Grobogan has intensified competition, further eroding SMGR’s position.

SMGR’s strategy of deploying fighting brands has not yielded the desired results. The contribution of these brands grew from 10% of total bag volume in 2021 to 25% in FY24E but failed to stem the overall market share decline.

Pivot to Building Material Solutions

To diversify its portfolio, SMGR introduced Precise Interlock Bricks (PIB) in 2024. PIB technology reduces construction time and material usage, aligning with the government’s affordable housing program. SMGR plans to build nine PIB facilities with a total annual capacity of 1.3 billion bricks, equivalent to 330,000 houses. However, the use of PIB requires 20-30% less cement than traditional methods, posing a risk of cannibalizing its core product.

Despite this, PIB is expected to contribute 1.4-2.0% to SMGR’s revenue by FY29E. The government’s 3 million housing program could further boost earnings by 16-30% in FY25E.

Recommendation

Maybank Sekuritas Indonesia has reinitiated coverage of SMGR with a HOLD rating and a target price of IDR 2,900. While the company stands to benefit from government programs, its extensive plant network and cost challenges weigh heavily on its financial performance.

Indocement (INTP): A More Resilient Competitor

Indocement (INTP), a key competitor to SMGR, has demonstrated stronger resilience in the face of market headwinds. Its concentrated plant locations have allowed it to maintain higher utilization rates and superior EBITDA margins.

Financial Highlights

In contrast to SMGR, INTP posted earnings of IDR 621 billion in 3Q24, nearly triple SMGR’s IDR 218 billion. Its EBITDA margins remained more robust, showcasing its operational efficiency and ability to navigate cost pressures better than its peers.

Market Position

While INTP does not enjoy the same market share as SMGR, its focus on operational efficiency and a leaner cost structure has allowed it to maintain profitability even during industry downturns. Its strategic plant locations have been a key factor in optimizing logistics and reducing overhead.

Recommendation

Maybank Sekuritas Indonesia has given INTP a BUY rating with a target price of IDR 7,200, citing its resilience and superior financial metrics as key strengths.

Semen Baturaja (SMBR IJ): A Newly Acquired Asset

Semen Baturaja (SMBR), acquired by SMGR in 2023, operates primarily in Sumatra. While the acquisition added to SMGR’s capacity, it has not significantly improved its market share or financial performance.

Contribution to SMGR

SMBR contributed an additional 2-2.5% to SMGR’s market share. However, the overall impact on SMGR’s financials has been limited due to the highly competitive landscape and industry oversupply.

Recommendation

Maybank Sekuritas Indonesia has not provided a specific rating for SMBR, but it acknowledges its limited impact on SMGR’s overall performance.

Singa Merah and Grobogan: New Entrants Intensifying Competition

The entrance of two new players, Singa Merah and Grobogan, has disrupted the market dynamics in Indonesia’s cement industry. These companies have added to the oversupply situation, putting additional pressure on incumbents like SMGR and INTP.

Market Impact

Both companies have rapidly established their presence, contributing to the declining market shares of industry leaders. The heightened competition is expected to persist, making it challenging for established players to defend their positions.

Recommendation

Neither Singa Merah nor Grobogan are publicly listed, and as such, no specific ratings or financial projections have been provided. However, their impact on the broader market is significant and warrants close monitoring.

Conclusion

Indonesia’s cement industry is at a crossroads, grappling with oversupply, rising costs, and intensifying competition. While Semen Indonesia remains the dominant player, its extensive plant network and cost pressures are significant hurdles. Indocement stands out as a more resilient competitor, leveraging its operational efficiencies to maintain profitability.

The introduction of new technologies like PIB and government initiatives such as the 3 million housing program offer potential growth opportunities. However, the overall market remains challenging, requiring strategic agility from all players to navigate the complexities.