Cement

FY25 Outlook: Limited Growth Catalysts Despite Undemanding Valuation

• We expect cement sales volume to grow by 2.3% yoy in FY25, with flattish bag cement growth and moderating bulk growth to 8% yoy.
• We expect blended ASP hike of 0.5-1%, with improvement in bag pricing (+0.5%-1% yoy) to be offset by a higher bulk ratio and fighting brand.
• Maintain Neutral rating on the sector on lack of meaningful growth catalysts, despite recovery traction. Our top pick remains INTP.

Sluggish bag, decent bulk segment growth outlook

We expect cement sales volume to grow by 2.3% yoy in FY25, with flattish bag cement growth (-0.3% yoy vs 10M24: -1.6% yoy) and moderating bulk segment growth (+8% yoy vs 10M24: +9.1% yoy). We continue to see soft purchasing power, as we believe government programs to support low-income households may take time to trickle down to household spending, with even further time needed to extend into spending on house renovation or construction. Meanwhile, we expect bulk cement growth to moderate, amid a lower budget on infra (-5% yoy), PUPR (Ministry of Public Works, -31% yoy), and IKN (Nusantara, -64% yoy). We think the 3mn housing program may help boost bulk volume growth, but we have not included this scenario in our estimates due to a lack of clarity.

ASP outlook: Diluted by higher fighting brand and bulk growth

We expect limited blended ASP upside for the cement industry of around 0.5%-1% yoy, as we expect recovery on bag price due to better volume growth (compared to a contraction in FY24). As of Nov24, the average bag price has improved by 2-3% vs. lowest level in Apr24, albeit still ~1% lower than Dec23. However, we expect the improvement in bag prices to be offset by a higher bulk sales ratio. Additionally, we expect a higher fighting brand contribution (15%-25% of total sales as of 9M24), where it is priced 12%-25% cheaper than the main brand. We noted a higher fighting brand ratio as the result of downtrading, which we expect to continue amid our expectation of flattish bag market growth and wider availability of fighting brand in the market. Nonetheless, we still expect 30-70bps improvement in the gross margin in FY25F due to slight improvement in blended ASP and lower fuel cost.

Maintain Neutral rating on sector. Lack of meaningful growth catalysts despite recovery traction. Despite our observation of a better volume run rate in 2H24, we do not expect sales to return to the pre-pandemic era in FY25. In the near-term, we see limited catalysts for cement, amid weaker purchasing power and lower infra budget. Therefore, we maintain our Neutral rating for the sector, as we see limited downside due to cheap valuations. We reiterate our top pick on INTP (Buy, TP Rp8,800) amid its ability to manage opex and maintain Hold rating for SMGR with TP of Rp3,900. Upside risks to our call: 1) 3mn housing scheme could bring large volume demand with market price; 2) Faster recovery in purchasing power; 3) Upward revision on infra/PUPR budget. Downside risks: 1) Delays on government scheme to help middle-low, prolonging the recovery phase; 2) Wider availability of Tier-3 brands; 3) Entrance of new players.

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