Cement

Lack of Long-Term Catalysts Despite 2H25 Potential Recovery; Reinitiate with Neutral

• 1H25 overall volume to remain subdued at -1%yoy; 2H25 potentially recover (~+1%yoy), mainly driven by gov’t spending acceleration.
• Cost-efficiency remains a key competitive edge, especially amid a price-sensitive market and relatively benign input prices.
• We are Neutral on the sector, as LT catalysts for solving the oversupply problem have yet to be seen. INTP remains our Top Pick.

Jun25 Volume to Remain Subdued (-1% yoy); Expect Slight Recovery in 2H

We expect 1H25 volume growth to remain subdued at -0.9% yoy, in line with the 5M25 print of -0.9% yoy and our discussions with cement players which suggest that Jun25 performance will most likely be flattish or decline by a single digit versus May25. The overall 1H25 decline reflects a double-whammy from weak consumer and lower gov’t expenditures. Our analysis shows similar budget disbursement slowdowns in the first year post-election, followed by catch-up spending in the following year (Exhibit 1). A repeat of this could uplift bulk cement demand in 2H25, although the impact may be muted this time due to budget focus reallocations towards food security and less clarity around the 3mn housing program. That said, the uptick in gov’t spending in 2H (Exhibit 2),  which aligned with cement volume seasonality (Exhibit 3) and higher working days in 2H25 (128days vs. 109days in 1H25), could still support 2H25 volume growth. We forecast FY25/26F volume growth at 0.1/1.5% yoy, implying a 2H25 improvement at +0.9% yoy vs. 1H25 at -0.9% yoy.  On the pricing front, we believe ASP downside is limited at this stage, as price cuts could pose risks to margin (Exhibit 5). We estimate FY25/26F ASP growth at -1.7/+1.5% yoy.

Cost-Efficiency Remains a Key Edge Amid a Price-Sensitive Market

While 2H25 may see a modest volume improvement, we believe cost-efficiency will remain the key differentiator for cement players over the next 2–3 years, as top-line growth continues to face pressure from weak macro conditions and diminishing brand relevance in an increasingly price-sensitive market. An efficient distribution is critical to maintain market share, while alternative fuel usage could provide cost advantages by reducing coal dependency to fuel and power cost per ton, potentially enhancing operating leverage amid the relatively benign coal prices and USD/IDR. (we estimate +10-15/20 bps impact on GPM for every 1% movement in coal price/USD) (Exhibit 7).

Valuation Discount Likely to Persist, Favor INTP on Execution

Despite attractive valuations (Exhibit 13), we see limited re-rating potential as oversupply concerns remain an overhang. We maintain a Neutral rating and favour companies with stronger margin discipline and better ROIC/WACC, reflecting better capital deployment amid the unattractive growth outlook. We prefer INTP over SMGR given its: 1) Better visibility on positive operating leverage from its higher alternative fuel adoption (Exhibit 10) 2) Better ROIC/WACC (Exhibit 15) 3) Fewer distribution issues vs. SMGR. Key downside risks: ODOL policy implementation (Exhibit 16), weaker macro and gov’t spending, higher rainfall reducing workable construction days (Exhibit 17), rising coal prices, industry players capacity addition. Upside risks: sustainable volume recovery post 2H25.

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