Bareksa.com - In May 2014, Indonesia Cement Association reported a solid growth in domestic cement consumption at +7.6% YoY to reach 5,19mn tonnes compared to 4,82mn tonnes in May 2013. Moreover, the May’14 sales volume was a revival after bad results in April’14, given its strong growth at +14.7% MoM. The yearly growth was far above the April’s growth at -0.4% YoY. It seems the same as our prediction that sales volume will grow slowly in 1H14 and start to bounce back in 2H14, as same as the prediction of some players in the industry. 5M14 sales volume represented 39% of our FY14F targeted of 61,5mn tonnes.

Java was still be the main contributor by giving a 57.5% portion (+75bps MoM & +33bps YoY), translated to 2,98mn tonnes cement sales volume (+16.2% MoM & -8.2% YoY). The second largest contributor was Sumatera which made a 20.8% portion (+42bps MoM & 19bps YoY), transformed to 1,08mn tonnes (+15.8% MoM & +5.5% YoY). Based on the cement sales type, portion of the bag sales volume was still bigger than the bulk with each portion of 79% and 21%.

Developed Market Share for SMGR & INTP, but not SMCB
In May’14, both of SMGR & INTP have succeeded to expand their market share to be 44.3% (+2bps MoM & +75bps YoY) & 31.6% (+66bps MoM & 90bps YoY), respectively. On the other hand, SMCB’s market share was contracted by -14bps MoM & -37bps YoY to 14.0%. Please note that SMGR has persistently maintained its position as the leader in the industry by showing consistent market share at >40% YTD.

Recommendations - Taking into account fluctuations in macroeconomic condition, on the back of election year, we expect the cement consumption to grow moderately by ~6% YoY in FY14F, to arrive to 61,51mn tonnes. We forecast 2014F EPS growth of companies under our coverage (SMGR & INTP) will reach 10% & 9% YoY. We continue to prefer SMGR due to: 1) the capacity to capture the demand through its well diversified plant locations. 2) consistent market share at >40%. 3) higher ROE at 26%/26% in 2014/15F, compared to INTP at 22%/21%.

*M. Dian Octiana is equity analyst of PT Buana Capital. This article is part of the Equity Research of PT Buana Capital