Cement: Jul24 Sales: Strong 14% mom vol growth, but risk from fighting brand pricing of Merdeka (NEUTRAL)

Stock Code	Last Price	Change	Change %
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PACK	2.250	200	9,76%
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Cement

Jul24 Sales: Strong 14% mom vol growth, but risk from fighting brand pricing of Merdeka

Industry sales vol grew robustly by 14.1% mom in Jul-24, with SMGR domestic vol grew 8% mom and INTP vol expanded by 23% mom.
Pricing was relatively stable in Jul-24, yet we observe slight pressure in Aug-24 by SMGR, driven by lower Semen Merdeka pricing.
We think 1%-2% vol growth is achievable but fighting brand ASP might become a risk. Maintain Neutral call on sector with INTP as top pick.

Jul24: a strong momentum with 14.1% mom vol growth

Industry sales volume grew robustly by 14.1% mom in Jul24, driven mainly by sales in West Java, Sumatra, and Central Java. Similar strong mom performance was also shared by SMGR (+11% mom, +8% mom for domestic-only volume) and INTP (+23% mom). On yoy basis, industry sales vol in Jul-24/7M24 expanded by 3.8%/2.5% yoy (0.8%/0.1% yoy for ex-Grobogan). Bulk segment remained as the key driver of vol growth in Jul24 (+15% yoy), while bag vol declined by -0.9% yoy. SMGR Jul24/7M24 sales vol. were -2%/-6% yoy (+0.7%/-1.1% yoy for domestic-only), as there was disruption in export market due to Bangladesh conflict in July albeit it has reportedly recovered in Aug. Meanwhile, INTP Jul24/7M24 sales vol rose by 11%/10% yoy (0.3%/1.3% yoy for ex-Grobogan). SMGR/INTP sales vol in Jul24 reached 52%/52% of our estimate, slightly below seasonality for SMGR, yet inline for INTP. We still expect sales vol to continue its growth momentum in 2H24, but continue to see a slower recovery in bag segment. We see downside risk on FY25 volume growth, given -5% yoy lower infrastructure budget from government.

Pricing: flattish Jul24, slightly weaker Aug24, but plans for more hikes

We observed flattish bag pricing in Jul24, inline with strong volume growth trend. However, in Aug24, we notice slight decline in ASP for SMGR (~2% mom), while INTP’s bag pricing remain stable. While we observe stable pricing for majority of fighting brands in Aug24, we think the biggest risk now is posed by the Merdeka cement (SMGR’s tier 2 brand), as its price per kg is currently 8-10% lower than Rajawali (INTP’s tier 2 brand), and similar to Jempolan (INTP tier 3 brand). Previously, SMGR’s management state that Merdeka should function as replacement for all its tier 2 brands, but given the latest pricing, we fear it could become lower tier fighting brand. While this implies a slight risk of price war to re-emerge, we think this can be avoided as long as FY24 volume growth remains inline (within 1-2% yoy). Some price adjustments which were announced in May/Jun24 are expected to take full impact in 3Q24, while both SMGR and INTP affirmed their aim to increase price further in Aug/Sep24.

Maintain Neutral rating for sector with INTP as top pick

We maintain our Neutral rating on the sector, and reiterate our top pick on INTP (Buy, TP Rp 8,800), and maintain our Hold rating for SMGR (TP Rp 4,100). Judging from current volume growth traction, we still see 1%-2% sales vol growth in FY24E to be achievable. Upside risks to our call: 1) Recovery in mid/low segment that may lead to better bag sales; 2) Higher purchasing price to drive lower fighting brand ratio to total sales. Downside risks: 1) Intensifying price war in fighting brand; 2) Entry of new players.

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