Insights Indonesia Cement Price War On The Horizon

Indonesia Industry Focus
Indonesia Cement Sector

Refer to important disclosures at the end of this report
DBS Group Research . Equity
Bulky valuations
17 Feb 2015
JCI :
5,337.50
Unprecedented structural shift will see utilisation

rates reach a new low
Analyst
Deidy WIJAYA +6221 3003 4931
Deidy.Wijaya@id.dbsvickers.com
Expect pricing power to weaken; do not discount a

price war in 2016/17
CHONG Tjen San, CFA +603 26043972

tjensan@alliancedbs.com
Multiplier effect of infrastructure projects will only

kick in in 2017
Valuations are rich but earnings growths are

slowing; initiate coverage of SMGR and INTP with
FULLY VALUED ratings
Unprecedented structural shift. Indonesias cement industry is

experiencing an unprecedented structural shift that will see the
derating of the key incumbent listed players. Cement demand
growth peaked in 2010-2013, driven by the property sector which
generated a multiplier of 2.4-2.7x GDP. But by 2017, cement
supply will outstrip demand by a staggering 26m tonnes with
incoming capacities from new foreign entrants. For the first time
since 2010, we estimate industry utilisation rate will fall below
80%, and to 74% by 2017 (lowest since 2007). The more
vulnerable segment will be bulk cement despite an expected
acceleration in infrastructure spending, because this will likely be
the target market for new entrants. Bulk cement is already
generating lower margins than bag cement.
Situation exacerbated by weak pricing power. The supplydemand imbalance will continue to weaken pricing power and
erode margins of cement players. This was evident last year, when
the price hike was insufficient to offset cost increases. The
situation was made worse after Jokowi instructed SOE cement
companies (Semen Indonesia and Semen Baturaja) to reduce bag
cement price by 4-5%, which offset the benefit of low energy
prices. Also, floating electricity tariffs and fuel prices starting this
year implies higher volatility for cement players. Do not discount a
price war as early as 2016/2017, when most of the new supply
comes on stream. Our channel checks reveal that Anhuis and
Siam Cements Indonesian presence account for c.3% of their
total production, respectively, suggesting they may sacrifice pricing
to gain market share.
Rich valuations unwarranted given slower earnings growth
and declining ROE. SMGR and INTP are currently trading at
15x/14x FY15F/16F EPS (slightly above their 10-year mean P/E), but
earnings growth will slow to <5% CAGR (FY14-FY17) from 1316% between FY09 and FY13. ROE will also drop from 31%-27%
(in FY12) to 19%-20% (in FY17). Our TPs are based on 12x FY16F
EPS (-1SD of mean). Our forecast earnings are 11-14% below
consensus estimates. Of the two, Semen Indonesia is less
vulnerable because of its geographical reach and the bulk of new
supply which is coming onstream is in Western Java, where
Indocement is dominant. We initiate coverage of SMGR and INTP
with FULLY VALUED calls.
www.dbsvickers.com
ed-SGC / sa- MA
STOCKS
Price
Rp
Semen Indonesia
Indocement
Holcim Indonesia
14,675
23,800
1,960
Mkt Cap Target Price Performance (%)

3 mth
12 mth
US$m
Rp
6,823
6,868
1,172
12,200
20,200
N.A
(8.5)
(3.3)
(13.5)
(2.4)
5.5
(14.5)
Source: Bloomberg Finance L.P., DBS Vickers, AllianceDBS

Semen Indonesia : Semen Indonesia (SMGR IJ) : SMGR was established
in 1957. In 1995 the company completed an acquisition of Semen
Padang and Semen Tonasa. It is currently the largest player in the
market with 40.7% market share.
Indocement Tunggal Prakarsa : Indocement was established in 1975.
The expanded heavily in the 90s, prior to Heidelberg Cement Group
becoming the majority shareholder in 2001. The company now trades
under the brand Tiga Roda.
Holcim Indonesia: PT Holcim Indonesia Tbk is an Indonesia-based
company primarily engaged in cement manufacturing and distribution.
Its business is classified into three segments: cement production and
distribution; ready-mix concrete production and aggregates mining,
and other services, comprising cement distribution services.
Rating
FV
FV
N.R
Industry Focus
Analysts
Deidy WIJAYA +6221 3003 4931
CHONG Tjen San, CFA +603 26043972
Page 2
Table of Contents
Investment Thesis
Supply/Demand Outlook
Significant new capacity in the next three years
Positive impact from weak energy prices offset by lower ASP
Premium valuation to narrow as oligopoly structure breaks down
11
STOCK PROFILE
12
Indocement Tunggal P.
13
Semen Indonesia
28
Industry Focus
Investment Thesis
Entering a new era skewed supply-demand balance. We
estimate 33m tons of new capacity will come onstream in the
next three years. This will be more than double our forecast
cement demand growth (16m tons) over the same period. As
such, we forecast industry utilisation will drop from 90% in FY14
to 74% in FY17. SMGR and INTP would be able to keep
utilisation relatively high at over 80% due to their strong brand
equity and solid distribution channels. But this will depend on
how rational the new competition in the form of foreign players
will be. For sure, competition will be more intense and pricing
power will weaken.
Demand to recover partially, driven by rollout of infrastructure
projects. We expect cement demand to pick up this year after a
very slow 2014 (+3.3% y-o-y vs. 7.6% CAGR over FY04-13) as
the government accelerates the rollout of infrastructure projects.
The channeling of fuel subsidy into infrastructure and the new
land bill (which will be effective from 2015) will boost cement
demand from this year onwards. But growth will not return to
the hey days as bag demand will be impacted by the slowdown
in property sales and slow economic growth this year. Our base
case assumption is for cement demand to grow by 6%/8%/10%
in FY15/16/17, with demand for bulk cement growing by
14%/18%/20%. Our base case estimate is for bulk cement
contribution to increase from 22% currently to 27% by 2017.
But this is still insufficient to absorb the additional supply coming
on stream.
Bulk segment most vulnerable. We estimate bulk cement
generate c.500 bps lower gross margin than bag cement.
Furthermore, bulk segment will continue to face margin pressure
as entry barriers are also much lower. The incumbents will
continue to enjoy high market shares in the bag segment for the
next few years due to their strong brand equity and solid
distribution channels. But in the bulk segment, customers are
more price-sensitive and the new entrants could be a serious
threat to the incumbents pricing power as they try to gain
market share.
suggests those players can afford to be aggressive in their pricing

in order to win market share in Indonesia. We are already seeing
some signs, as the pricing of Semen Merah Putih (by Wilmar
Group) is c.5-10% cheaper than the Tiga Roda brand (by
Indocement) and Semen Gresik brand (by Semen Indonesia
group). Semen Merah Putih bag cement (cement imported from
Vietnam) was introduced two years ago so Wilmar would get a
head start in marketing the product. In January this year, they
have managed to capture 2.4% market share. We believe the
new players will pose a bigger threat to the incumbents market
shares a few years down the road, especially in the bulk market,
once they have batching plants to deliver Ready Mix Concrete
(RMC).
Benefits from low energy prices offset by lower ASP. Margins
have fallen in the last two years as cement producers had been
reluctant to pass on all of the cost increases. EBITDA margins
have fallen by almost 400 bps for both of the cement players, to
31%/34%, attributed to soft demand in the last two years and
also to discourage foreign players from entering Indonesia. The
cost pressure has eased recently as electricity tariff had been
reduced by 15% m-o-m in January (after the 65% hike last year)
and a further 2% in February and subsidised diesel price have
also been reduced twice in January (-14.6% total after 36.4%
hike in Nov 2014). However, these benefits were short-lived as
Jokowi had recently instructed SOE cement companies (Semen
Indonesia (SMGR) and Semen Baturaja (SMBR)) to reduce bag
cement price by Rp3,000/bag (cut by 4-5%) because of the lower
energy price. This is the first time that a president has played a
role in determining cement prices, and we fear Jokowi would
continue to control SMGRs and SMBRs cement prices, and erase
prospects of margins recovery as a result of lower costs.
Rich valuations unwarranted given slower growth and declining

ROE. We forecast SMGR and INTP will register slower earnings
growth in the next three years (c.5% vs. 13-16% over FY09-13),
as their margins continue to decline. EBITDA margins are
expected to drop by further 400-500 bps between FY14 and
FY17. And ROE would drop from 30.5%-27.1% (in FY12) to
19%-20% (in FY17). These could lead to a derating of the two
Hence, a price war should not be ruled out. Based on our
channel checks, Anhuis and Siam Cements capacity in Indonesia stocks, from 15-16/14-15x FY15/16 P/E (5 year mean). Our TPs
are pegged to 12-13x FY16 EPS (-1Sd of mean) to reflect the
will account for a very small share (c.3%) of their total installed
weak outlook for the sector. Therefore, we initiate coverage of
capacity. And given the high capex incurred, they may sacrifice
SMGR and INTP with FULLY VALUED calls.
pricing to gain market share. Anhui currently has 260m tons
capacity in China, but is targeting for only 6.5m tons capacity in
Indonesia by 2017 (<3% of group capacity). Likewise, Siam
Cement has 56m tons capacity in Thailand, and is planning to
commission 1.8m tons in Indonesia by 2017 (c.3%). This
Page 3
Industry Focus
Key risks to our call. 1) Strong property sales. We expect property

sales to be relatively flat this year. But if sales unexpectedly surge
this year, there would be upside risk to our demand assumptions.
2) Stronger-than-expected economic growth. If GDP growth is
significantly higher than our assumption (>7%), there could be
upside risk to our sales volume and utilisation rate assumptions.
3) Major delays in new greenfield projects. If the new players
plants are delayed by more than a year, there would be
downside to our supply assumption, and utilisation rate would be
higher, and pricing power of the incumbents would be higher
than we predicted. 4) Further drop in coal and oil prices and/or a
stronger IDR. If coal and oil prices continue to tumble or the IDR
strengthens sharply this year, Indonesian cement players will see
minimal cost increases and enjoy stronger margins, assuming the
government does not further interfere in cement pricing.
Page 4
Industry Focus
Supply/Demand Outlook
Growth forecast
Indonesia: Construction spending as % of GDP

Rp bn
12%
10%
8%
6%
4%
2%
2013
2012
2011
2010
2009
0%
2008
2007
2006
2005
2004
2003
2002
2001
2000
1,000
Demand to recover after a slow year, but growth will not be
900
spectacular. Historically, near-term cement demand has strong
800
700
positive correlation with GDP growth, property presales, as well
600
as infrastructure development. Of these determining factors, only
500
infrastructure development is positive in the near term, as we
400
300
expect slow economic growth and a lackluster property market
200
this year. But infrastructure development will mainly lift demand
100
for bulk cement, which is a much smaller contributor than bag
0
cement and faces the most competition because there is little
differentiation between products. We also do not expect the
Construction spending (LHS)
multiplier effect from infrastructure development to kick in soon,
given several headwinds in the property sector in the near term. Source: CEIC, DBS Vickers, AllianceDBS
% of GDP (RHS)
Indonesia: Cement domestic consumption breakdown

SOE contractors: new contracts (in Rp bn)
R M C: c..60%
Bulk
21.0%
Ho using:
c.9 0%
Cement
b ased
i n dustry:
c.1 0%
Fab ricator:
c.3 5%
Projects (mortar,
render): c.5%
100,000
30%
90,000
26%
70,000
19%
60,000
Bag
79.0%
25%
80,000
50,000
15%
14%
40,000
10%
30,000
20,000
5%
10,000
3%
0%
Source: Semen Indonesia Presentation
20%
2012
2013
WIKA
2014
PTPP
WSKT
2015F
2016F
yoy growth
Source: Companies, DBS Vickers, AllianceDBS
Bulk cement sales will continue to grow faster than bag cement.
The bulk segment has been growing faster than bag segment
Cement: bag vs. bulk sales volume (in m tons) and growth
every year since 2008, and contribution has grown from 15% to
in m tons
80
35%
22% last year. Following the recent cut in fuel subsidy, the
70
30%
government will save c.Rp200tr under the APBN (Central
21.0
60
17.5
25%
Government Budget), and based on 2015 RAPBN-P (revised
14.8
13.0
12.2
50
10.8
20%
budget), c.50% of the savings would be channeled into
8.8
40
6.6
6.2
5.9
infrastructure development. As a result, we expect to see large
15%
30
54.6
51.2
48.7
infrastructure projects being rolled out in the coming years. Such
46.9
10%
45.7
44.1
20
39.2
projects typically use bulk cement, which supports our thesis that 10 32.2 32.8 34.2
5%
the bulk segment will continue to grow rapidly in the next few
0
0%
2008
2009
2010
2011
2012
2013
2014
2015F
2016F
2017F
years. We estimate bulk sales will grow by 14%/18%/20% in
Bag
Bulk
Bag's yoy growth
Bulk's yoy growth
Bulk's contribution
FY15/16/17, to take bulk contribution to 27% by 2017.
Source: ASI, DBS Vickers, AllianceDBS
Page 5
Industry Focus
Indonesia: Possible revision to income tax article 22

Large housing backlog + growing middle-class = robust long
term demand; but there are headwinds in the near-term
Threshold to be taxed under tax income
article 22
The property sector will remain bullish over the long term
Current regulation
supported by the large housing deficit, a young population, and
(PMK no.
Proposed changes
urbanisation. However, there are several headwinds in the near
No
Taxed Items
253/2008)
1) Transaction
1) Transaction
term. Our Indonesia Property analyst expects transaction volume
value > Rp10bn
value > Rp2bn
for listed property developers to drop this year as the affordability
Landed
and/or 2) Building
and/or 2) Building
ratio is stretched, albeit still lower than in regional cities (see
1
residential
area > 500m2
area > 400m2
1) Transaction
1) Transaction
When the going gets tough dated 2 Dec 2014 by Edward
Apartment,
value > Rp10bn
value > Rp2bn
Tanuwijaya). The other headwinds are:
condominium,
etc
and/or 2) Building
area > 400m2
Regulations and liquidity tightening risk

Source: Various sources, DBS Vickers
Upward trend in BI rate
Possible revision to Income Tax article 22 to extend the
BI rate movement
scope of residential properties that are subject to 5%
8.00
additional tax
7.50
The slow growth of the Property sector in the near-term will have
7.00
an impact on cement demand, especially bag cement. Hence, we
6.50
forecast demand for bag cement to be muted (4-5%) in the next
6.00
two years.
Jakarta property price/income ratio is rising
5.50
and/or 2) Building
area > 150m2
5.00
18
Jan-11 May-11 Sep-11
BI Rate
16
Source: Bank Indonesia (BI), DBS Vickers
14
12
Indonesia: Marketing sales of listed property companies
10
45,000
40,000
35,000
30,000
flattish
+56% CAGR
25,000
20,000
0
2009
2010
2011
2012
2013
2014
Source: Numbeo, DBS Vickers
Maximum LTV
Category
House > 70 sqm

House 22 - 70 sqm
Apartment > 70 sqm
Apartment 22 - 70 sqm
Apartment < 21 sqm
Shophouse
15,000
10,000
5,000
Indonesia: maximum Loan-to-Value (LTV) regulation

1st mortgage
2nd mortgage
3rd mortgage
onwards
70%
70%
80%
-
60%
70%
60%
70%
70%
70%
50%
60%
50%
60%
60%
60%
Source: Bank Indonesia (BI), DBS Vickers
Page 6
Rpbn
2009
2010
2011
2012
2013
2014F 2015F
Source: Companies, DBS Vickers
Multiplier effects will take years to kick in

We are bullish on the multiplier effects of infrastructure projects,
especially road construction. Better road access will trigger more
housing and commercial developments, which will then be
followed by other property developments. These would boost
cement consumption further. But this will not kick in so soon as
the removal of fuel subsidy will reduce disposable income, and in
turn, demand for property.
Industry Focus
tons) was more than of incremental supply (7.7m tons), pushing

domestic utilisation rate to over 95%.
Significant new capacity in the next three years

New supply will be twice that of cement demand growth,
utilisation will drop below 75% by 2017. Between 2002 and
2017F, we note 3 distinct stages in the demand and supply
dynamics of Indonesia cement industry. From 2002 to 2008,
supply was more or less constant while demand grew in line with
GDP (5.7% CAGR), lifting utilisation gradually from 61% to
80%. Between 2010 and 2013, the unexpected property boom
drove cement demand to the roof (12.5% CAGR or about 2x
GDP growth). During that period, incremental demand (17.2m
We are now entering the third phase, where incremental supply

will be significantly more than incremental demand. We forecast
new supply in the next three years to reach 34m tons compared
to only c.16m tons forecast incremental demand. The biggest
incremental supply will come in 2016, which would push
utilisation to below 80% for the first time since 2010. By 2017,
we estimate utilisation would drop further to 74%, similar to
2007 level.
Indonesia cement industry: supply, demand and utiliaation rate

120,000
120%
96%
100,000
88%
80%
80,000
67%
61%
61%
60,000
70%
68%
73%
76%
Aggressive expansion
plans by incumbents and
new entrants
95%
89%
77%
77%
Property boom
fuelled cement
demand
Capacity was flat for >6 years,

demand growing in line with
GDP
100%
85%
74%
80%
60%
40,000
40%
20,000
20%
0%
Demand (000 tons)
Capacity (000 tons)
Utilization rate
Indonesia: Utilisation rate will continue to drop as

incremental supply outpaces new demand
(in 000 tons)
16,000
100%
14,300
14,000
12,550
12,000
90%
10,000
85%
7,600
8,000
6,884
6,300
5,105
6,000
4,000
95%
3,750
3,054
2,000
80%
75%
3,587
70%
2,029
65%
New players eyeing Western Java; Indocement will hurt the most.
Since cement is a regional product in Indonesia, not all areas are
equally affected. Based on the manufacturers expansion plans,
Western Java (West Java, Jakarta and Banten) faces the biggest
supply risk as 14.7m tons (or 42%) of new supply will be in that
region, with 70% of that supply coming from new players (Anhui
Conch, Siam Cement and Semen Merah Putih). The incremental
new capacities in Java will reach 18.2m tons by end 2017,
assuming no major delays in greenfield projects. This is almost
twice our forecasted incremental demand of c.10m tons for Java.
60%
2013
Incremental demand
2014
2015F
2016F
Incremental effective supply*
2017F
Utilization rate (RHS)
Page 7
Industry Focus
Indonesia: New installed capacity by location (2015-2017)

West Java, Banten and Jakarta
Central Java
East Java
West Sumatra
South Sumatra
South Sulawesi
South Kalimantan
Others
T ota l
INT P
4,400
2,500
S M GR
S M CB
3,000
1,700
3,000
1,500
6,900
7, 500
1,700
Othe rs
10,300
1,500
1,100
1,850
3,750
18, 500
T ota l
14,700
7,000
2,800
3,000
1,850
1,500
3,750
34,600
Since Western Java is Indocements primary market (c.50%

contribution to its domestic sales volume; >40% market share),
its lead will be at risk when the new plants come on stream.
Indonesia cement companies: historical and planned capacities

Compa ny
Loca tion
East Java
Central Java
West Sumatra
South Sulawesi
2012
11,600
6,330
4,620
22, 550
2013
14,000
6,400
7,300
27, 700
2014
14,400
7,300
7,300
29,000
2015F
14,400
7,300
8,800
30, 500
2016F
14,400
3,000
10,300
8,800
36, 500
2017F
14,400
3,000
10,300
8,800
36, 500
West Java
South Kalimantan
Central Java
16,000
2,600
18, 600
16,000
2,600
18, 600
17,900
2,600
20,500
22,300
2,600
24, 900
22,300
2,600
24, 900
22,300
2,600
2,500
27, 400
West Java
Central Java
East Java
5,600
3,500
9, 100
5,600
3,500
9, 100
5,600
3,500
1,700
10,800
5,600
3,500
3,400
12, 500
5,600
3,500
3,400
12, 500
5,600
3,500
3,400
12, 500
South Sulawesi
Riau
East Java
Papua
2,300
1,200
3, 500
2,300
1,200
3, 500
4,000
1,200
5,200
4,000
1,200
1,100
6, 300
4,000
1,200
1,100
750
7, 050
4,000
1,200
1,100
750
7, 050
Baturaja
South Sumatra
1, 250
2, 000
2,000
2, 000
2, 000
3, 850
Andalas (Lafarge)
Aceh
1, 600
1, 600
1,600
1, 600
1, 600
1, 600
Kupang
NTT
550
550
550
550
550
550
South Kalimantan
West Java
Others
1,500
1,500
1,500
1, 500
1,500
1, 500
1,500
2,000
3,000
6, 500
Siam Cement
West Java
1, 800
1, 800
Semen Merah Putih (Wilmar)
Banten
750
1, 750
5, 750
5, 750
Panasia
Central Java
1, 500
1, 500
Juishin
West Java
1, 500
1, 500
1, 500
83, 100
97, 150
106, 500
SMGR
INTP
SMCB
Bosowa
Anhui Conch
T ota l
Page 8
57, 150
63, 050
71,900
Industry Focus
Positive impact from weak energy prices offset by lower ASP

Energy accounts for a big chunk of cement players cash cost.
Coal/fuel accounts for about 20% of SMGRs and INTPs cash
costs, while electricity accounts for 12-14%. Distribution,
transportation and handling costs are also a major cost items, at
c.24%/16% of SMGRs/INTPs cash costs.
We estimate c.30% of the distribution, transportation and
handling costs is from diesel, so the price of coal, electricity and
diesel collectively account for c.40% of SMGRs and INTPs cash
costs.
Lingering risk of further margin erosion. There will be further

margin erosion once the new supply comes on stream from 2016
onwards. Falling oil price could delay the negative impact on
cement players margins. But this could be short-lived once the
new supply comes on stream; we would not discount a price war
to gain market share. Our base case assumption is that EBITDA
margins will decline by c.500 bps between FY13 and FY17 as
cement utilisation rate drops from 95% to 74%.
Utilisation rates vs. EBITDA margins
50%
100%
SMGR and INTP: cash cost breakdown
95%
45%
90%
40%
85%
35.7%
43.4%
35%
80%
75%
30%
8.4%
23.6%
7.8%
70%
15.9%
65%
12.2%
13.7%
20.1%
19.2%
SMGR
INTP
25%
60%
20%
2006
2007
2008
2009
2010
Cement's utilization rate
Coal/fuel
Electricity
Distribution, transportation and handling
Direct labor
2011
2012
2013
INTP's EBITDA margin
2014F 2015F 2016F 2017F

SMGR's EBITDA margin
Source: Semen Indonesia, Indocement, DBS Vickers, AllianceDBS

Others
Source: Semen Indonesia, Indocement, DBS Vickers, AllianceDBS
Floating electricity and diesel prices imply higher earnings

volatility. Starting January 2015, electricity tariff is revised
monthly using the following formulas:
Benefits of low coal and oil prices offset by recent price control.
The benefit of lower energy prices was short-lived for Indonesian
cement companies, after Jokowi instructed SMGR and SMBR to
cut bag cement price by 4-5%. With c.46% market share

between them, this move would have a significant impact on the
industry. We expect Indocement (INTP) and Holcim (SMCB) to
also lower prices to protect their market shares. In fact, INTP said
they have lowered the price of cement in Jakarta (where they are
the price leader) by Rp3,000 to maintain the same gap with the
rest of the players.
We think SMGRs share price will be affected more by this as:
Tariffnew = Tariffold * (1 + Adjustment)

Tariffold = 1,191 per kWh (based on the tariff regulation set in
Permen ESDM number 09/2014)
exchange_rate) + %(Kicp *
ICP) + %(Kinflation * inflation) where, K is the coefficient of
Adjustment = %(Kexchange_rate *
each variable in place, determined by PLN each month
exchange_rate = the difference between the average USD/IDR
exchange rate (2 months prior) and the USD/IDR exchange rate

assumption in 2013 APBN (Rp9,300/USD)
ICP = the difference between Indonesia Crude Price (2 months
prior) and the Indonesia Crude Price assumption in 2013 APBN

(US$100/barrel)
1)
2)
the stock offers lower dividend yield than INTP, and even
that may be cut; and
INTP has greater flexibility in determining selling price. If
utilisation remains high, INTP has the option to reduce
selling price by a smaller quantum.
inflation = the difference between monthly inflation rate (2
months prior) and the monthly inflation rate assumption in 2013

APBN (4.9%/12 months)
YTD, the tariff for I4 has been lowered twice (-15%/-2% m-o-m
in Jan/Feb) following the sharp drop in the oil price. The
adjustment for January/February was based on ICP, USD/IDR
exchange rate and inflation rate in November/December 2014 (2
Page 9
Industry Focus
subsidy for diesel. This means that subsidised fuel prices will also
be floated starting this year. Floating electricity and fuel prices
imply higher earnings volatility for cement players going forward.
months lag). Prices of subsidised gasoline/diesel was also cut by

c.13%/12% in January 2015, also due to the sharp drop in ICP.
Based on January 2015 prices, the government has completely
removed the subsidy for gasoline, but there is still a Rp1,000/liter
Electricity tariff for I4 (Industry with >30,000 kVa of power)
in Rp
1,300
13% hike every 2
months (65% total
increase)
1,200
1,100
1,000
900
800
700
Jan-15
Feb-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
Apr-14
May-14
Feb-14
Mar-14
Jan-14
Dec-13
Nov-13
Oct-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Feb-13
Mar-13
Jan-13
600
Electricity tariff for I4 (per kWh)

Source: PLN, DBS Vickers
Historical subsidised fuel prices
9,000
8,000
Gasoline price was hiked by 89%

in 18 mths
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
Gasoline
Source: Pertamina, DBS Vickers
Page 10
Diesel
Subsidized
fuel price
have been
lowered
twice in
January
due to low
oil price
Industry Focus
Premium valuation to narrow as oligopoly structure breaks

down
demand growth for Indonesia, we still expect utilisation rates
to continue to drop over the next three years to c.74% as new
players aggressively ramp up production. As such, we estimate
the market share of the top 3 players would fall to c.82% by
FY17. Valuation wise, Indonesian cement players are trading
on par with Siam Cement and at a premium to the China
players, despite slower expected earnings growth. But with the
Indonesian cement players experiencing an unprecedented
structural shift, we expect their current premium valuation
relative to China peers to narrow.
More attractive industry structure than China and Thailand, but

advantages will gradually be eroded. Indonesian cement
players have been enjoying high margins due to the oligopoly
structure of the industry, with the top 3 players controlling
nearly 90% market share. In Thailand, the top 3 players
command c.80% market share, while in China, the top 10
players only control 40-45% market share. In terms of
utilisation rate, it was 89% for Indonesia last year vs. 85% for
Thailand and 75% for China. However, despite higher forecast
Cement Sector: Indonesia vs Thailand and China
Country
Indonesia
China
Thailand
Ce me nt Production
Compa ny
Ca pa city ( m ton)
Semen Indonesia
28.5
Indocement
21.5
Holchim Indonesia
10.1
CNBM
400
Anhui Conch
260
China Shanshui
107
West China Cement
27
CR Cement
77
Siam Cement*
56
Utiliza tion ra te
FY15 de ma nd FY16 de ma nd
growth
growth
98%
6.0%
8.0%
75%
2.5%
2.5%
85%
5%
5%
Source: Companies, DBS Vickers
Peer comparison of regional cement companies
Company
Semen Indonesia
Indocement
Holcim
Indonesia*
Indonesia
Anhui Conch
CNBM
China Shanshui
West China
Cement
CR Cement
China
Siam Cement
Thailand
Ticker
Code
Current Price
(local currency)
Market Cap
(USDm)
SMGR IJ
INTP IJ
14,525
23,000
6,863
6,768
SMCB IJ
1,970
1,204
914 HK
3323 HK
691 HK
26.8
7.6
3.7
18,337
5,288
1,611
2233 HK
1313 HK
0.9
4.7
518
3,877
472.0
17,688
SCC TB
P/E
EV/EBITDA
FY15
14.2
15.1
FY16
13.5
14.2
FY15
9.4
9.4
FY16
8.7
8.7
15.2
14.8
9.0
5.3
10.8
12.8
13.5
8.2
5.0
8.8
7.9
8.9
5.3
8.3
7.0
7.0
8.1
5.2
8.1
6.4
12.4
6.6
8.8
15.0
15.0
10.0
6.4
7.7
13.7
13.7
4.7
5.5
6.2
10.3
10.3
4.5
5.3
5.9
9.6
9.6
ROE
FY15
23%
22%
18%
19%
14%
7%
8%
16%
20%
Source: Bloomberg Finance L.P., DBS Vickers

Note*: Based on consensus forecasts
Page 11
Industry Focus
STOCK PROFILES
Page 12
Indonesia Company Focus
Indocement Tunggal Prakarsa

Bloomberg: INTP IJ | Reuters: INTP.JK
17 Feb 2015
FULLY VALUED Rp23,800
Most vulnerable to competition
JCI : 5,325.50
(Initiating Coverage)
Price Target : 12-Month Rp20,200
Reason for Report : Initiating coverage
Potential Catalyst: Strong property sales, lower coal and oil price
Analyst
Deidy WIJAYA +6221 3003 4931
Initiate with Fully Valued (TP Rp20,200) as

valuation is rich at 15x FY16 EPS
Price Relative
Rp
Relative Index
28,080.0
211
26,080.0
191
24,080.0
171
22,080.0
20,080.0
151
18,080.0
131
16,080.0
111
14,080.0
91
12,080.0
Feb-12
Feb-13
Indocement Tunggal P. (LHS)
Forecasts and Valuation

FY Dec (Rp bn)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
EPS (Rp)
EPS Pre Ex. (Rp)
EPS Gth (%)
EPS Gth Pre Ex (%)
Diluted EPS (Rp)
Net DPS (Rp)
BV Per Share (Rp)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
Earnings Rev (%):
Consensus EPS (Rp):
No. of brokers following:
2013A
18,691
6,785
6,595
5,010
5,010
1,361
1,361
5
5
1,361
900
6,234
17.5
17.5
16.2
11.1
3.8
3.8
CASH
23.7
Feb-14
71
Feb-15
Relative JCI INDEX (RHS)
2014F
20,141
6,953
6,808
5,174
5,174
1,406
1,406
3
3
1,406
929
6,739
16.9
16.9
16.5
10.8
3.9
3.5
CASH
21.7
2015F
22,222
7,370
7,133
5,421
5,421
1,473
1,473
5
5
1,473
974
7,282
16.2
16.2
14.3
10.2
4.1
3.3
CASH
21.0
2016F
25,089
7,863
7,510
5,707
5,707
1,550
1,550
5
5
1,550
1,025
7,859
15.4
15.4
13.7
9.5
4.3
3.0
CASH
20.5
1,411
B: 20
1,533
S: 5
1,755
H: 8
ICB Industry : Industrials

ICB Sector: Construction & Materials
Principal Business: Indocement was established in 1975. The
expanded heavily in the 90s, prior to Heidelberg Cement Group
becoming the majority shareholder in 2001. The company now
trades under the brand Tiga Roda.
Source of all data: Company, DBS Vickers, AllianceDBS, Bloomberg

Finance L.P
www.dbsvickers.com
ed: SGC / sa: MA
New players aggressively entering Western

Java poses significant threat
Premium margins to face pressure
CHONG Tjen San, CFA +603 2604 3972

10,080.0
Feb-11
Heavily reliant on Java with >70% of sales

volume coming from Java
Core primary market to face headwinds. INTP

derives >70% of its sales volume from Java, while
Western Java (West Java, Jakarta and Banten) alone
contributes almost 50% of its total sales volume. Based
on the companies expansion plans, Western Java faces
the biggest supply risk as 14.7m tons (or 42%) of the
new supply will be from that region and 70% of that
supply is coming from new players (Anhui Conch, Siam
Cement and Semen Merah Putih).
Premium margins to face pressure. Indocement
(INTP) is currently the most profitable cement company
with c.35% EBITDA margin primarily due to its pricing
power and centralised facilities. It trades under the
Tiga Roda brand, arguably the most widely known
cement brand in the country. It benefits from
economics of scale from centralised facilities. However,
we think this position will be soon under pressure with
the additional competition and we project utilisation
rates to fall to 88% in 2017 (94% now) bringing down
EBITDA margins to 29.5% (FY17).
Initiate with FULLY VALUED given rich valuation.
INTP is currently trading at c.16x 12M forward P/E
(above 5-year mean), despite slowing growth (c.5%
CAGR FY14-17) and declining ROEs. This appears
unjustified in our view with the changing demand and
supply dynamics. Moreover, the multiplier effect from
infrastructure boom will likely only filters through in
2017 which may coincide with a price war from the
heightened competition. Our TP of Rp20,200 is based
on 13x FY16 EPS (-1sd below its 5 year mean P/E).
At A Glance
Issued Capital (m shrs)
Mkt. Cap (Rpbn/US$m)
Major Shareholders
HC Indocement Gmbr (%)
Mekar Perkasa (%)
Free Float (%)
Avg. Daily Vol.(000)
3,681
87,613 / 6,868
64.1
13.0
22.9
3,433
Company Focus
INVESTMENT THESIS
Profile
Indocement (INTP) is the most profitable cement player with
the highest margin. It trades under Tiga Roda brand,
arguably the most widely known brand in Indonesia. It is the
market leader in Western Java where its sales volume is
concentrated at (c.50%). It commands a higher margin due
to its centralised production facilities and premium pricing. It
also has a strong RMC arm.
Rationale
Cement industry is facing an unprecedented structural shift
We estimate new supply to be more than double of new
demand, bringing utilisation down from 89% to 74% by
2017.
Margin projected to keep sliding due to weakening pricing

power and increasing contribution from bulk cement
3 major players are entering Indonesia Semen Merah
Putih (Wilmar Group), Anhui Conch and Siam Cement.
Anhui Conch and Siam Cement are market leaders in
China and Thailand respectively. With their Indonesia
plants contributing only c.3% to their total capacities,
there could be price war once their plants come on
stream as they try to gain market share.
The fast growing segment in Indonesia is the bulk
segment (contribution estimated to rise from 22% to
27% by FY17), which is used for infrastructure projects
and high rise buildings. With less barriers to entry (brand
equity and distribution channels), this segment (which
already commands lower margins) will be the likely target
for the new entrants.
Benefits from low energy prices offset by lower ASP

After Semen Indonesia (SMGR) and Semen Baturaja
(SMBR) reduced their prices last month, INTP has also
lowered its prices in certain areas to maintain the gap
between its product and the competitors.
Rich valuations unwarranted given slower growth and

declining ROE
INTP is currently trading at 16x 12M forward P/E (above 5
year mean) despite slowing earnings growth and declining
ROE.
Valuation
Our target price of Rp20,200 is pegged to 13x FY16 EPS (-1
sd of 5 year mean). Initiate with FULLY VALUED call as there
is more than 10% downside from the current price
Risks
Weak demand growth due to slow rollout of infrastructure
projects
If the new government does not live up to expectation

in speeding up infrastructure development, cement
demand growth could disappoint, thus hurting INTPs
utilisation and profitability.
Competition in Western Java
INTPs dominance in Western Java could be under

threat once the new players start productions. We think
that there would be oversupply in Western Java by 2017
and INTPs dominance in that region will be under severe
threat.
Source: DBS Vickers, AllianceDBS

Page 14
Company Focus
SWOT Analysis
Strengths
Centralised facilities. The company adopts a centralised
strategy which allows it to obtain economies of scale. Sharing
of facilities, largely weighted in West Java enables the
company to minimize the cost of production.
Strong brand image, especially in Java. INTP trades under
the brand Semen Tiga Roda which is arguably the most
widely known brand in the country. Its brand image is
especially strong in Western Java, where it is currently the
market leader.
It has a strong RMC arm. As RMC is widely used for
infrastructure projects, it stands to benefit from potential
infrastructure boom.
Weakness
Lack of presence outside Java. 72% of its cement sales
came from Java, so INTPs cement sales is very heavily
dependent on the performance of a single island.
Less packing plants compared to SMGR. Currently INTP
do not have as many packing plants as SMGR. Therefore,
distribution time and readiness of stock can be a problem
when demand suddenly spikes up.
Opportunities
Geographically, the company still has a lot of room to
expand. As the company is currently very heavily weighted in
Java, it has ample opportunities to expand to other islands,
backed by its strong balance sheet.
Threats
New players (Anhui Conch, Siam Cement and Semen
Merah Putih) are all eyeing Western Java, Indocements
primary market. Based on the companies expansion plans,
Western Java faces the biggest supply risk as 14.7m tons
(or 42%) of the new supply will be from that region and
70% of that supply is coming from new players (Anhui
Conch, Siam Cement and Semen Merah Putih).
Page 15
Company Focus
Western Java, its primary market faces the highest supply risk
half of its domestic sales volume is derived from Western Java
(Jakarta, Banten and West Java). It has so far enjoyed high
market share in Jakarta (40.5%) and West Java (54.8%).
INTPs domestic sales dominated by Western Java. INTP has a

strong Java focus; 72% of its domestic sales volume is derived
from Java vs. 56% for the national average. In fact, almost
Breakdown on sales volume by region
7.6%
3.3%
7.4%
9.7%
5.9%
7.6%
7.6%
7.6%
20.9%
15.5%
13.3%
11.5%
36.3%
20.1%
12.9%
9.7%
INTP
National
Jakarta
West Java
Central Java
Yogyakarta
Sumatra
Kalimantan
Sulawesi
Others
East Java
FY14 Market Share of Cement Companies in Java
7.1%
17.7%
4.6%
10.4%
18.8%
35.0%
27.2%
2.3%
18.3%
27.4%
40.3%
40.4%
25.2%
40.0%
71.2%
54.8%
40.9%
40.5%
38.8%
25.0%
Jakarta
West Java
Central Java
INTP
Page 16
SMGR
Yogyakarta
SMCB
Bosowa
13.4%
East Java
Whole Java
Company Focus
Incoming supply is largely in Western Java. Based on cement

companies guidance, we estimate that 42% (14.7m tons) of
the incoming supply in the next 3 years will be located in
Western Java. INTP faces intensifying competition as 70%
(14.7m tons) of the new capacities will come from new
players. Even if we assume an aggressive growth rate of 10%
CAGR between FY14-17 for Western Java, the incremental
demand from this region would only be 5.9m tons or merely
40% of the potential increment in capacity. We are

concerned that new players would sacrifice margin to gain
market share as they try to ramp up their utilisation rate.
INTPs margin, currently being the highest in Indonesia, is
therefore at significant risk. Therefore, we built in EBITDA
margin erosion from 36.3-34.5% in FY13-FY14 to 33.229.7% in FY15-FY17F respectively.
New installed capacity by location (2015-2017)
West Java, Banten and Jakarta

Central Java
East Java
West Sumatra
South Sumatra
South Sulawesi
South Kalimantan
Others
T ota l
Page 17
INT P
4,400
2,500
S M GR
S M CB
3,000
1,700
3,000
1,500
6, 900
7, 500
1, 700
Othe rs
10,300
1,500
1,100
1,850
3,750
18, 500
T ota l
14,700
7,000
2,800
3,000
1,850
1,500
3,750
34, 600
Company Focus
Company Background
Corporate History. Indocement was established in 1975.

In 1989, the Company became PT. Indocement Tunggal
Prakarsa following a merger with 6 companies. Two years
later, the Company became listed. Following major
expansions in the 90s, Heidelberg Cement Group acquired a
majority stake in 2001.
The Company trades cement under the brand Tiga

Road and currently supplies a number of products
ranging from PCC and OPC to less common cements
such as oil well cements and white masonry. The
Company prides itself as the introducer of Portland
Composite Cement (PCC) to Indonesia. Currently, the
majority of INTPs sales volume comes from PCC.
Sales Trend
Profitability Trend
Rp bn
Rp bn
30.0%
25,000
7,260
25.0%
20,000
6,760
20.0%
15,000
15.0%
10,000
5,000
10.0%
5,760
5.0%
5,260
0.0%
0
2012A
2013A
Total Revenue
2014F
2015F
2016F
Revenue Growth (%) (YoY)
Source: Company, DBS Vickers, AllianceDBS
Page 18
6,260
4,760
2012A
2013A
Operating EBIT
2014F
Pre tax Profit
2015F
2016F
Net Profit
Company Focus
Key Management Team
President Director
He was appointed as the President Director in May 2014. He

has been a member of the Board of Director since 2004. He
holds an MBA degree from San Diego State University and
Master of Arts in Christian Education from SWBTS, Fort
Worth, Texas, USA.
Franciscus Welirang
Vice President Director
Has been VP since early 2011. Concurrently also the VP

commisioner for Lonsum, diector for Indofood and the
chairman for the Indonesian Wheat Flour Producers
Association. Was also the President commisioner for the
Surabaya Stock Exchange. Graduated from Chemical
engeneering from South Bank Polytechnic, England.
Kuky Permana
Director
Joined the company in 1978 and became a director in 2006.

Previously the Deputy Technical Director of the company.
Has a Degree in Civil and Municipal Engineering from
University College, London, UK.
Director
Has been a director since 2008. Previosly was project and

investment manager in Turkey . Was also the Asian Regional
Coordinator for the Group at the Heidelberg Technology
Center. In Germany up until 2004. Holds a degree in
Mechanical Engineering from Istanbul State Engineering and
Architecture Academy, Turkey.
Director
Appointed director in 2011. Previously served as the Finance

Director for a German company subsidiary in Indonesia,
beforebecoming the manager for the purchsing division in
Indocement. Holds a degree in Industrial Management and
Engineering, majoring in Finance and accounting from
University of Karlsruhe, Germany.
Director
Appointed director in November 2012. Prior to joining

Indocement, he served as Deputy Managing Director,
HeidelbergCement Bangladesh Ltd. He holds a Bachelors of
Science in Electrical and Electronic Engineering from
Chittagong University of Engineering and Technology in
1988 and a Masters degree in Business Administration &
Management in 1994 from Southeastern University,
London, England. Bangladeshi citizen, age 49.
Daniel Kundjono Adam
Director
Appointed as director in December 2013. Previously, was

the Sales and Marketing Division Manager of the Company
since 2002. He holds an MBA degree from Institut
Pendidikan dan Pembinaan Manajemen, Jakarta.
Benny S. Santoso
Director
Director since 1994. Also serve as President commisioner for

PT. Nippon Indosari and commisioner for Indoofood. Also
director for First Pacific Co. Ltd. Holds a degree from Ngee
Ann College in Singapore.
Director
Has been director since 2009. Previously worked in

Votorantim Cimentos, America as VP and COO. Holds a
Bachelor Science dgree in Civil Engineering Technology from
University of Massachusetts, USA.
Christian Kartawijaya
Hasan Imer
Tjue Lie Sukanto
Ramakanta Bhattacharjee
Daniel R. Fritz
Source: Company
Page 19
Company Focus
Key Business Risks
Weak demand growth due to slow rollout of

infrastructure projects. If the new government does not live
up to expectation in speeding up infrastructure development,
cement demand growth could disappoint, thus hurting INTPs
utilisation and profitability.
Competition in Western Java. INTPs dominance in

Western Java could be under threat once the new players
start productions. We think that there would be oversupply in
Western Java by 2017 and INTPs dominance in that region
will be under severe threat.
Upside Risks to Our Call
Strong rebound in property sales. We expect domestic

property sales volume to register flattish growth for this year
as there are plenty of headwinds in the near term upward
trend in BI rate, regulations and liquidity tightening risk as
well as cost pressure from fuel subsidy removal. If property
sales actually rebound strongly this year, there would be
upside risk to our cement sales volume assumption as
property is the biggest contributor to cement consumption.
Further drop in oil and coal price. If coal and oil price
continues their downtrend, INTP would benefit in the short
Page 20
term. Almost 40% of its cash cost are linked to coal and oil
price. Should coal and oil continue their downtrend, there
would be upside to our margin and earnings assumptions for
this year.
Significant delay in new players Greenfield projects. If

the new players Greenfield projects are delayed or cancelled,
our incremental supply assumption would be overstated and
cement utilisation rate would be understated. Competition
could be less severe than our assumption and thus pricing
power would be higher than we predicted.
Company Focus
Sensitivity Analysis
Domestic sales volume assumption. Our base case

assumption for INTPs domestic sales volume to be
19.4m tons for this year, implying a utilisation rate of
90.8%. We performed sensitivity analysis and assumed
5% higher and lower sales volume. As a result, NPAT is
impacted by +/-3.5%.
EBITDA margin. Our base case assumption for INTPs

EBITDA margin is 33.2%. If we raise/lower our margin
assumption by 50 bps, NPAT would be impacted by
2.0%.
Sensitivity Analysis on Domestic Sales Volume
Domestic sales volume

Domestic sales volume (in 000 tons)
Implied volume growth
Utilisation
Revenue (in Rp bn)
EBITDA (in Rp bn)
NPAT (in Rp bn)
Impact on NPAT
FY15 base case

19,350
6.4%
90.8%
22,222
7,370
5,421
-5%
18,383
1.1%
86.3%
21,224
7,074
5,230
-3.5%
+5%
20,318
11.7%
95.3%
23,220
7,666
5,611
3.5%
Sensitivity Analysis on EBITDA Margin
EBITDA margin
Revenue (in Rp bn)
EBITDA (in Rp bn)
NPAT (in Rp bn)
Impact on NPAT
Page 21
FY15 base case

(33.2%)
22,222
7,370
5,421
50bps lower
22,222
7,259
5,310
-2.0%
50bps higher
22,222
7,481
5,532
2.0%
Company Focus
Key Assumptions
FY Dec
Domestic Sales Vol
('000 tones)
Domestic ASP/tonne (in
Rp)
EBITDA margin (%)
Segmental Breakdown
FY Dec
2011A
2012A
2013A
2014F
2015F
2016F
15,122
17,611
17,642
18,189
19,350
20,769
862,953
911,182
36.7
38.3
36.3
34.5
33.2
31.3
2011A
2012A
2013A
2014F
2015F
2016F
13,260
16,115
17,046
18,316
20,076
22,567
1,343
1,934
2,739
2,990
3,486
4,065
71
81
116
139
160
184
(786)
(839)
(1,209)
(1,304)
(1,501)
(1,727)
13,888
17,290
18,691
20,141
22,222
25,089
4,404
5,799
6,139
6,026
6,276
6,503
(22)
76
(86)
70
203
11
21
24
28
29
4,418
5,877
6,064
6,047
6,370
6,734
958,265 1,001,387 1,031,428 1,075,780
2015
Domestic sales
volume +/- 5%
EBITDA margin +/50bps
Net Profit +/3.5%

Net Profit +/- 2%
Revenues (Rp bn)

Cement
Ready Mix Concrete
Aggregates
Other Businesses
Total
Operating profit (Rp bn)
Cement
Ready Mix Concrete
Aggregates
Other Businesses
Total
Operating profit Margins
(%)
Cement
Ready Mix Concrete
Aggregates
33.2
36.0
36.0
32.9
31.3
28.8
(1.6)
3.9
(3.1)
0.0
2.0
5.0
15.0
9.9
2.5
9.2
15.0
15.0
Other Businesses
(3.7)
0.0
0.0
0.0
0.0
0.0
Total
31.8
34.0
32.4
30.0
28.7
26.8
Page 22
Growing RMC business
Company Focus
Income Statement (Rp bn)

FY Dec
2011A
2012A
2013A
2014F
2015F
2016F
Revenue
13,888
17,290
18,691
20,141
22,222
25,089
33.0%
Cost of Goods Sold
(7,474)
(9,020)
(10,037)
(11,018)
(12,330)
(14,219)
31.0%
6,414
8,270
8,655
9,123
9,891
10,870
29.0%
(1,987)
(2,425)
(2,680)
(3,076)
(3,521)
(4,137)
4,427
5,845
5,975
6,047
6,370
6,734
23.0%
(9)
32
89
21.0%
18
19
21
22
282
354
513
742
742
754
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Margins Trend
4,708
6,240
6,595
6,808
7,133
7,510
(1,107)
(1,476)
(1,583)
(1,634)
(1,712)
(1,802)
(5)
(3)
(2)
3,597
4,760
5,010
5,174
5,421
5,707
Net Profit before Except.
3,597
4,760
5,010
5,174
5,421
EBITDA
5,091
6,619
6,785
6,953
7,370
5,707
7,863
Net Profit
Growth
Revenue Gth (%)
24.7
24.5
8.1
7.8
10.3
12.9
EBITDA Gth (%)
9.7
30.0
2.5
2.5
6.0
6.7
Opg Profit Gth (%)
10.1
32.0
2.2
1.2
5.3
5.7
Net Profit Gth (%)
11.5
32.3
5.2
3.3
4.8
5.3
Gross Margins (%)
46.2
47.8
46.3
45.3
44.5
43.3
Opg Profit Margin (%)
31.9
33.8
32.0
30.0
28.7
26.8
Net Profit Margin (%)
25.9
27.5
26.8
25.7
24.4
22.7
ROAE (%)
25.0
27.1
23.7
21.7
21.0
20.5
ROA (%)
21.5
23.3
20.3
18.8
18.4
17.9
ROCE (%)
21.9
24.1
20.5
18.5
18.1
17.8
Div Payout Ratio (%)
30.0
34.8
66.1
66.1
66.1
66.1
Net Interest Cover (x)
NM
NM
NM
NM
NM
NM
Margins & Ratio
Page 23
35.0%
27.0%
25.0%
2012A
2013A
Operating Margin %
2014F
2015F
2016F
Net Income Margin %
We expect margins to keep

declining as competition
intensifies
Company Focus
Quarterly / Interim Income Statement (Rp bn)

FY Dec
2Q2013 3Q2013 4Q2013
Revenue Trend
1Q2014
2Q2014
3Q2014
6,000
25%
20%
5,000
15%
4,699
4,430
5,343
4,500
4,999
4,668
4,000
(2,443)
(2,385)
(2,958)
(2,531)
(2,764)
(2,524)
3,000
Gross Profit
2,255
2,045
2,385
1,969
2,235
2,144
2,000
Other Oper. (Exp)/Inc
(622)
(614)
(751)
(753)
(683)
(777)
1,000
Operating Profit
1,633
1,431
1,635
1,216
1,551
1,367
Associates & JV Inc
117
105
172
218
215
180

Pre-tax Profit
1,754
1,541
1,812
1,438
1,773
1,554
Tax
(479)
(354)
(409)
(307)
(390)
(348)
(1)
(1)
(1)
(2)
Net Profit
1,275
1,187
1,402
1,129
1,380
1,206
Net profit bef Except.
1,275
1,187
1,402
1,129
1,380
1,206
EBITDA
1,838
1,632
1,843
1,427
1,775
1,580
Minority Interest
10%
5%
0%
-5%
-10%
-15%
Revenue
Revenue Growth % (QoQ)
Growth
Revenue Gth (%)
11.4
(5.7)
20.6
(15.8)
11.1
EBITDA Gth (%)
17.8
(11.2)
12.9
(22.5)
24.4
(6.6)
(11.0)
Opg Profit Gth (%)
19.6
(12.4)
14.2
(25.6)
27.6
(11.9)
Net Profit Gth (%)
11.2
(6.9)
18.1
(19.4)
22.2
(12.6)
Gross Margins (%)
48.0
46.2
44.6
43.8
44.7
45.9
Opg Margins (%)
34.8
32.3
30.6
27.0
31.0
29.3
Net Profit Margins (%)
27.1
26.8
26.2
25.1
27.6
25.8
Margins
Page 24
1Q is seasonally weakest
3Q2014
2Q2014
1Q2014
4Q2013
3Q2013
2Q2013
1Q2013
4Q2012
-20%
3Q2012
Cost of Goods Sold
2Q2012
Revenue
Company Focus
Balance Sheet (Rp bn)

FY Dec
Net Fixed Assets
Asset Breakdown (2014)

2011A
2012A
2013A
2014F
2015F
2016F
7,638
7,935
9,305
10,399
11,899
199
241
456
456
456
456
Cash & ST Invts
6,865
10,474
12,595
12,600
12,798
13,131
Inventory
1,328
1,470
1,474
1,790
2,004
2,310
Debtors
1,977
2,455
2,519
2,813
3,104
3,505
146
180
259
300
338
391
18,151
22,755
26,607
28,359
30,598
33,063
Invts in Associates & JVs

Other LT Assets
Other Current Assets

Total Assets
ST Debt
13,270
1,477
2,419
2,740
2,631
2,871
3,212
LT Debt
131
108
93
93
93
93
Other LT Liabilities
809
809
797
797
797
797
Other Current Liab
Shareholders Equity
15,706
19,388
22,947
24,808
26,808
28,930
Minority Interests
28
31
30
30
30
30
Total Cap. & Liab.
18,151
22,755
26,607
28,359
30,598
33,063
Non-Cash Wkg. Capital
1,973
1,687
1,511
2,273
2,574
2,994
Net Cash/(Debt)
6,733
10,366
12,502
12,507
12,705
13,038
Debtors Turn (avg days)
44.4
46.8
48.6
48.3
48.6
48.1
Creditors Turn (avg days)
37.8
48.0
53.5
49.8
47.4
46.9
Inventory Turn (avg days)
70.4
61.9
58.2
58.9
61.1
60.1
Asset Turnover (x)
0.8
0.8
0.8
0.7
0.8
0.8
Current Ratio (x)
7.0
6.0
6.1
6.7
6.4
6.0
Quick Ratio (x)

Net Debt/Equity (X)
6.0
5.3
5.5
5.9
5.5
5.2
CASH
CASH
CASH
CASH
CASH
CASH
Net Debt/Equity ex MI (X)
CASH
CASH
CASH
CASH
CASH
CASH
Capex to Debt (%)
390.1
886.6
2,161.0
2,155.2
2,694.1
2,694.1
22.7
14.3
16.8
15.8
14.7
NA
Z-Score (X)
Page 25
Debtors 10.2%
Net Fixed
Assets 37.7%
Assocs'/JVs 0.0%
Inventory 6.5%
Bank, Cash
and Liquid
Assets 45.6%
Strong balance sheet
Company Focus
Cash Flow Statement (Rp bn)

FY Dec
2011A
Capital Expenditure
2012A
2013A
2014F
2015F
2016F
4,708
6,240
6,595
6,808
7,133
7,510
2500
664
773
810
906
1,000
1,129
2000
Tax Paid
1500
Assoc. & JV Inc/(loss)
1000
Chg in Wkg.Cap.
(270)
280
160
(762)
(301)
(419)
500
Other Operating CF
(112)
(142)
(563)
Net Operating CF
3,884
5,675
5,419
5,318
6,120
6,417
Capital Exp.(net)
(512)
(961)
(2,005)
(2,000)
(2,500)
(2,500)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
3000
Pre-Tax Profit
Dep. & Amort.
Net Investing CF
(505)
(959)
(2,005)
(2,000)
(2,500)
(2,500)
Div Paid
(968)
(1,078)
(1,658)
(3,313)
(3,421)
(3,585)
Chg in Gross Debt
(311)
(48)
(49)
89
(1,190)
(1,126)
(1,707)
(3,313)
(3,421)
(3,585)
(9)
20
414
Chg in Cash
2,179
3,610
2,121
198
333
Opg CFPS (Rp)
1,128
1,466
1,429
1,652
1,744
1,857
Free CFPS (Rp)
916
1,281
927
901
983
1,064
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Page 26
2012A
2013A
2014F
2015F
Capital Expenditure (-)
Strong CFO and high

earnings quality
2016F
Company Focus
Valuation
Initiate coverage: FULLY VALUED, TP Rp20,200. We

peg our TP to 13x FY16 EPS (slightly more than 1 sd below
its 5 year mean P/E to reflect the slowing earnings growth).
INTP is currently trading at c.16x (5 year mean) 12M forward
P/E. We believe the stock faces derating from the current

rich valuation as its earnings growth slow to c.5% CAGR
(FY14-17) from c.16% (FY09-13).
INTPs 12M forward P/E band
(x)
Peak = 20.3x
20.0
Mean = 15.4x
16.0
Current = 15.9x
12.0
8.0
Jan-10
Trough = 9.2x
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Source: Bloomberg Finance LP, DBS Vickers, AllianceDBS
INTPs 12M forward EV/EBITDA band
(x)
14.0
Peak = 13.2x
11.0
Mean = 10x
Current = 10.4x
8.0
5.0
Jan-10
Trough = 5.7x
Jan-11
Jan-12
Page 27
Jan-13
Jan-14
Jan-15
Indonesia Company Focus
Semen Indonesia
Bloomberg: SMGR IJ | Reuters: SMGR.JK
17 Feb 2015
FULLY VALUED Rp14,675
Market lead under pressure
JCI : 5,325.50
(Initiating Coverage)
Price Target : 12-Month Rp 12,200
Reason for Report : Initiating coverage
Potential Catalyst: Strong property sales, lower coal and oil price
Analyst
Deidy WIJAYA +6221 3003 4931
CHONG Tjen San, CFA +603 2604 3972
Price Relative
Rp
Relative Index
221
18,930.0
201
16,930.0
181
14,930.0
161
12,930.0
141
10,930.0
121
8,930.0
101
6,930.0
Feb-11
Feb-12
Semen Gresik (LHS)
Forecasts and Valuation

FY Dec (Rp bn)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
EPS (Rp)
EPS Pre Ex. (Rp)
EPS Gth (%)
EPS Gth Pre Ex (%)
Diluted EPS (Rp)
Net DPS (Rp)
BV Per Share (Rp)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
Earnings Rev (%):
Consensus EPS (Rp):
No. of brokers following:
Feb-13
81
Feb-15
Feb-14
Relative JCI INDEX (RHS)
2013A
24,501
8,099
6,920
5,370
5,370
905
905
11
11
905
407
3,521
16.2
16.2
14.4
10.8
2.8
4.2
CASH
28.1
2014F
27,132
8,451
7,256
5,604
5,604
945
945
4
4
945
425
4,058
15.5
15.5
13.6
10.3
2.9
3.6
CASH
24.9
2015F
29,035
8,704
7,459
5,766
5,766
972
972
3
3
972
437
4,605
15.1
15.1
12.5
9.9
3.0
3.2
CASH
22.4
2016F
31,910
9,197
7,806
6,040
6,040
1,018
1,018
5
5
1,018
458
5,186
14.4
14.4
11.9
9.3
3.1
2.8
CASH
20.8
956
B: 20
1,032
S: 8
1,183
H: 6
ICB Industry : Industrials

ICB Sector: Construction & Materials
Principal Business: Semen Gresik (SMGR IJ) : SMGR was established
in 1957. In 1995 the company completed an acquisition of Semen
Padang and Semen Tonasa. It is currently the largest player in the
market with 40.7% market share.
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
www.dbsvickers.com
ed: SGC / sa: MA
Pole position under pressure
Further margin degradation as pricing power

erodes
Expensive at 15x/14x FY15/16F EPS given

pedestrian growth
Initiate coverage: FULLY VALUED, TP Rp12,200

(pegged to 12x FY16F EPS)
Market lead will be eroded. Semen Indonesia (SMGR)

currently leads with 44% share of cement sales in
Indonesia. But this will be eroded gradually after the
anticipated new capacities come on stream in 2016. We
estimate its market share would shrink to 41% by 2017,
partly mitigated by its strong and established brand equity.
SMGR sells cement under three brands, Semen Gresik,
Semen Padang and Semen Tonasa which have strong
brand equities in Java, Sumatra and Sulawesi, respectively.
Also, the different price points for each brand allow the
company to tap different market segments to maximise its
market share.
Hurt least by rising competition, but not spared.
SMGR sells 52% of its output to Java vs 72% for
Indocement and 71% for Holcim. It also has >30% market
share on the major islands in Indonesia. Hence, it should
be less affected by incoming competition which will be
mainly in Java. However, its margins will not be spared; we
anticipate they will drop to 30% by this year from 33.1%
and 31.1% in FY13-14F. This also takes into account the
4-5% mandated price cuts by Jokowi for bag cement,
which effectively offset potential savings arising from
lower electricity and diesel costs.
High valuation unwarranted given slowing growth.
SMGR is currently trading 15x 12M forward P/E (5 year
mean), despite much slower earnings growth of c.5%
CAGR over FY14-17 vs. 13.9% over FY09-13. The stock is
likely to be derated as earnings growth will be at its
slowest since 2004.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (Rpbn/US$m)
Major Shareholders
Govt. of Indonesia (%)
Free Float (%)
Avg. Daily Vol.(000)
5,932
87,045 / 6,823
60.0
40.0
8,405
Company Focus
Semen Indonesia
INVESTMENT THESIS
Profile
Semen Indonesia (SMGR) is the largest cement player in
Indonesia with >40% market share. It has production
facilities on three key islands (Java, Sumatra and Sulawesi)
and solid distribution channels, which enables it to command
high market shares throughout Indonesia. SMGR sells cement
under three brands, Semen Gresik, Semen Padang and
Semen Tonasa which have strong brand equities in Java,
Sumatra and Sulawesi, respectively.
Rationale
Cement industry is facing an unprecedented structural shift
We estimate new supply to be more than double of new
demand, bringing utilisation down from 89% to 74% by
2017.
Margin projected to keep sliding due to weakening pricing

power and increasing contribution from bulk cement
3 major players are entering Indonesia Semen Merah
Putih (Wilmar Group), Anhui Conch and Siam Cement.
Anhui Conch and Siam Cement are market leaders in
China and Thailand respectively. With their Indonesia
plants contributing only c.3% to their total capacities,
there could be price war once their plants come on
stream as they try to gain market share.
The fast growing segment in Indonesia is the bulk
segment (contribution estimated to rise from 22% to
27% by FY17), which is used for infrastructure projects
and high rise buildings. With less barriers to entry (brand
equity and distribution channels), this segment (which
already commands lower margins) will be the likely target
for the new entrants.
Benefits from low energy prices offset by lower ASP

After Jokowi recently instructed SOE cement companies
to reduce bag cement price by Rp3,000/bag (cut by 45%), the positive impact from lower energy prices are
wiped out. We also fear Jokowi would continue to control
SMGRs and SMBRs cement prices, and erase prospects
of higher margins as a result of lower costs.
Rich valuations unwarranted given slower growth and

declining ROE
SMGR is currently trading at 15x 12M forward P/E (5 year
mean) despite the slowest earnings growth expected in a
decade.
Valuation
Our target price of Rp12,200 is pegged to 12x FY16 EPS (-1
sd of 5 year mean). Initiate with FULLY VALUED call as there
is more than 10% downside from the current price
Risks
Weak demand due to slow rollout of infrastructure projects
If the new government fails in speeding up infrastructure
developments, cement demand growth could disappoint
and hurt SMGRs utilisation rates and profitability.
Timely completion of facilities
SMGR plans to increase capacity by c.25% over the next
three years. Delays could cause SMGR to lose market
share.
Expansion outside Indonesia facing some risks
We believe that SMGR faces some country and political
risks as it expands into Vietnam and Myanmar. Also, the
expansion will reduce SMGRs profitability as ASPs are
much lower in these countries.
Page 29
Company Focus
Semen Indonesia
SWOT Analysis
Strengths
Largest market share in the industry. SMGR had 44%
market share in FY14.
It has production facilities on three key islands (Java,
Sumatra and Sulawesi) and solid distribution channels, which
enables it to command high market shares throughout
Indonesia.
Weakness
Expansion beyond Indonesia may pressure margins as
ASPs in other countries are much lower than in Indonesia.
Higher transportation costs than INTP and SMCB as its
distribution covers a wider area.
Opportunities
Large growth opportunities outside Java. Eastern Indonesia
is growing rapidly due to the low base. SMGR will be the main
beneficiary when that market starts to generate meaningful
contribution as it is already building brand equity and
distribution networks in those regions.
Threats
Entry of new players such as Anhui Conch, Siam Cement,
Semen Merah Putih could disrupt the oligopoly structure of
Indonesias cement sector.
Potential price war if the competitors decide to fight for
market share.
Government
intervention to lower
prices, as
demonstrated recently for bag cement.
Page 30
Company Focus
Semen Indonesia
Largest geographical reach in Indonesia

Only cement player with production facilities on the three
major islands. SMGR is the only player with production
facilities in Java, Sumatra and Sulawesi. The second largest
player, Indocement (INTP) only has facilities in Java and
.
Kalimantan. Furthermore, SMGR has 22 packing plants

distributed over Indonesia to ensure the timely delivery of its
products. As a result, SMGR has been consistently the market
leader with >40% market share.
SMGR Group Cement Production Facilities

Capacity (in 000 tons/year)
Company
Semen Gresik
Cement Plant
Location
2012
2013
2014
2015F
2016F
2017F
Gresik
East Java
800
800
1,200
1,200
1,200
1,200
Tuban I
East Java
2,900
2,900
2,900
2,900
2,900
2,900
Tuban II
East Java
2,900
2,900
2,900
2,900
2,900
2,900
Tuban III
East Java
2,900
2,900
2,900
2,900
2,900
2,900
Tuban IV
Upgrading / debottlenecing
East Java
2,100
3,000
3,000
3,000
3,000
3,000
1,500
1,500
1,500
1,500
1,500
3,000
3,000
11,600
14,000
14,400
14,400
17,400
17,400
700
720
720
720
720
720
810
860
860
860
860
860
1,920
1,920
1,920
1,920
1,920
1,920
2,900
2,900
2,900
2,900
2,900
2,900
3,000
3,000
Rembang
East Java
Central
Java
Total
Indarung II
Indarung III
Indarung IV
Semen Padang
Indarung V
Indarung VI
Dumai
West
Sumatra
West
Sumatra
West
Sumatra
West
Sumatra
West
Sumatra
West
Sumatra
Total
Tonasa II
Tonasa III
Semen Tonasa
Tonasa IV
Tonasa V
Total
Grand Total
YoY Increase
Page 31
South
Sulawesi
South
Sulawesi
South
Sulawesi
South
Sulawesi
South
Sulawesi
900
900
900
900
6,330
6,400
7,300
7,300
10,300
10,300
700
700
700
700
700
700
700
700
700
700
700
700
2,900
2,900
2,900
2,900
2,900
2,900
320
3,000
3,000
3,000
3,000
3,000
1,500
1,500
1,500
4,620
7,300
7,300
8,800
8,800
8,800
22,550
27,700
29,000
30,500
36,500
36,500
13%
23%
5%
5%
20%
0%
Company Focus
Semen Indonesia
SMGR Group Sales Volume and Market Share
35,000
47%
46%
30,000
45%
25,000
44%
20,000
43%
15,000
42%
41%
10,000
40%
5,000
39%
38%
Semen Gresik
Semen Padang
Semen Tonasa
SMGR's market share (RHS)
Multi-brand strategy to maximise market share. Unlike INTP

and SMCB which sell under one brand name, SMGR sells its
products under three different brands. The main reason for
this is that all three brands have strong brand equities in their
respective regions before SMGR acquired Semen Padang and
Semen Tonasa. Each brand has a different geographical
focus: Semen Gresik on Java and Kalimantan, Semen Padang
Primary Markets for SG, SP and ST

Company
Plant Location
Primary Markets
Semen Gresik
Semen Padang
Semen Tonasa
East Java
West Sumatra
South Sulawesi
Java, Kalimantan
Sumatra, Jakarta, West Java
Sulawesi, Kalimantan, Eastern
Indonesia
Page 32
on Sumatra, Jakarta and West Java, and Semen Tonasa on

Sulawesi, Kalimantan and East Indonesia. Furthermore,
because of their different price points, SMGR is able to
maximise market share by capturing customers from different
market segments. Semen Gresik is the groups premium
brand, while Semen Padang and Semen Tonasa are priced
c.5% cheaper.
Company Focus
Semen Indonesia
Less dependent on Java than Indocement and Holcim

Java only contributes c.50% of SMGRs sales volume. This is
much smaller than for Indocement (72%) and Holcim (71%).
Therefore, SMGR should be affected less by the incoming
new supply and competition from new players, which will be
concentrated in Java. By island, SMGR is also the market

leader (by sales volume) on all the major islands (Java,
Sumatra, Sulawesi, Kalimantan).
Sales volume by region
10.9%
7.6%
3.3%
7.4%
8.7%
9.7%
7.7%
2.2%
0.4%
5.8%
7.6%
7.6%
20.9%
7.6%
20.9%
20.5%
72.0%
70.7%
56.3%
52.1%
SMGR
INTP
Java
Sumatra
SMCB
Kalimantan
Sulawesi
National
Others
FY14 Market Share of Cement Companies By Region

Region
SMGR
INTP
SMCB
Bosowa
Andalas
Baturaja
Kupang
Java
40.4%
38.8%
18.3%
2.3%
0.0%
0.0%
0.0%
Sumatra
42.9%
14.1%
14.7%
3.2%
15.0%
10.1%
0.0%
Kalimantan
50.2%
29.6%
11.1%
9.1%
0.0%
0.0%
0.0%
Sulawesi
63.1%
13.3%
0.9%
22.7%
0.0%
0.0%
0.0%
Others
43.8%
29.9%
4.1%
18.5%
0.0%
0.0%
3.7%
Total Indonesia
43.7%
30.4%
14.6%
5.8%
3.1%
2.1%
0.3%
Page 33
Company Focus
Semen Indonesia
Company Background
Corporate History. Semen Indonesia (formerly known as

Semen Gresik) started in 1957 as a state-owned company
with an installed capacity of 250,000 tons. The government
completed the IPO over 20 years ago by releasing 27% of its
shares to the public. In 1995, Semen Indonesia increased its

capacity significantly by acquiring PT Semen Padang and PT
Semen Tonasa. In 1998, the public float increased as the
government pared down its stake to 51%.
Sales Trend
Profitability Trend
Rp bn
Rp bn
30.0%
30,000
7,347
25.0%
25,000
6,847
20.0%
20,000
15,000
15.0%
6,347
10,000
10.0%
5,847
5,000
5.0%
0.0%
2012A
2013A
Total Revenue
2014F
2015F
5,347
4,847
2016F
2012A
Revenue Growth (%) (YoY)
2013A
Operating EBIT
2014F
Pre tax Profit
2015F
2016F
Net Profit
Capacity. Semen Indonesia (SMGR) is currently the

largest cement producer in Indonesia with 29m tons/year
installed capacity (40% of national installed capacity). It has
integrated facilities in East Java, West Sumatra and South
Sulawesi, and is building a new facility in Central Java.
Page 34
East Java is the largest contributor. The companys

largest single largest contributor is East Java. More than
20% of the groups output is sold to East Java, where it
has >70% market share.
Company Focus
Semen Indonesia
Key Management Team

Suparni
President Director
Suparni was born on December 13, 1958. He was appointed as a Director

of the Company at the 2015 EGM. He was previously the Director of
Production and R & D. Current tenure as Director will expire in 2017. He
joined the Company in 1986. He was previously the Head Compartment
Tuban (2007), Head of Corporate Development Department (2006-2007),
and Head of Production II Tuban (2002-2006). He has a Bachelors degree
in Electrical Engineering from ITS Surabaya.
Ahyanizzaman
Director
Ahyanizzaman was born on July 6, 1966. He was appointed as Director of

Finance at the EGM on 11 March 2011; the term will end in 2016. He
previously served as Head of the Finance Division (2006-2010), Head of
Finance and Accounting (2010-2011), Head of Financial Accounting (20062007), Head of Accounting (2004-2006), and Acting Head of Accounting
(2002). He joined the Company in 1991. He has a Bachelor degree in
accounting from Airlangga University, Surabaya.
Amat Pria Darma
Director
Amat Men Darma was born on August 13, 1961. He was appointed as a
member of the Board of Directors in 2012 and his current term will expire
in 2017. Previously, he served as Head of Distribution and Transportation
Department. He started his career in PT Semen Gresik (Persero) Tbk in
1986. He graduated with Bachelor of Chemical Engineering degree from
Institut Teknologi Sepuluh Nopember in 1985.
Gatot Kustyadji
Director
Gatot Kustyadji was born on July 25, 1963. He was appointed as a member
of the Board of Directors at the 2014 AGM; the current term expires in
2019. Previously, he served as Director of Research and Development at PT
Semen Tonasa (2005-2010), Director of Research and Development and
Operations at PT Semen Tonasa (2011-2012), Production Director at PT
Semen Tonasa (2012-2014), and Director at PT. Semen Gresik. He has a
Chemical Engineering degree from Institut Teknologi Sepuluh Nopember
and a Bachelors degree in Management from University of Indonesia. He
has a Master degree in Economic Planning and Development from
University of Andalas. He received his Doctorate degree in the field of
human resources from Universitas Brawijaya.
Johan Samudra
Director
Johan Samudra was born on June 22, 1956. He was appointed as a

member of the Board of Directors at the 2014 AGM; the current term
expires in 2019. Previously, he served as CEO of Thang Long Cement
Vietnam, Director of Research and Development at PT Semen Padang
(2003-2005), and as GM Capex Management Group at PT Semen Gresik.
He has a Masters degree in Financial Management from Andalas
University.
Rizkan Chandra
Director
Rizkan Chandra was born in Jakarta on January 27, 1969. He was

appointed as a member of the Board of Directors at the EGM in 2015.
Previously, he served as Director of Network, IT & Solution PT
Telekomunikasi Indonesia (Persero) Tbk, Commissioner of PT Telkomsel and
Director of PT Sigma Cipta Caraka. He has a Bachelors degree in Computer
Science from Institut Teknologi Bandung (ITB) and a MSc in Management
of Technology from National University of Singapore.
Page 35
Company Focus
Semen Indonesia
Key Business Risks
Weak demand growth due to slow rollout of

infrastructure projects. If the new government does not live
up to expectation in speeding up infrastructure
developments, cement demand growth could disappoint and
hurt SMGRs utilisation rates and profitability.
Timely completion of facilities. SMGR plans to increase

capacity by c.25% over the next three years. Delays could
cause SMGR to lose market share.
Expansion outside Indonesia facing some risks. SMGR

has decided to expand beyond Indonesia by acquiring Thang
Long (a Vietnam-based cement producer) at the end of 2012
The management also indicated that they are looking at
countries such as Myanmar and Bangladesh for future
acquisitions. However, we believe that SMGR faces some
political risks in these countries. Also, the expansion will
reduce SMGRs profitability as ASPs are much lower in these
countries.
Upside Risks to Our Call
Strong rebound in property sales. We expect domestic

property sales volume to register flattish growth for this year
as there are plenty of headwinds in the near term upward
trend in BI rate, regulations and liquidity tightening risk as
well as cost pressure from fuel subsidy removal. If property
sales actually rebound strongly this year, there would be
upside risk to our cement sales volume assumption as
property is the biggest contributor to cement consumption.
Further drop in oil and coal price. If coal and oil price
continues their downtrend, SMGR would benefit in the short
term. Roughly 40% of its cash cost are linked to coal and oil
Page 36
price. Should coal and oil continue their downtrend, there

would be upside to our margin and earnings assumptions for
this year.
Significant delay in new players Greenfield projects. If

the new players Greenfield projects are delayed or cancelled,
our incremental supply assumption would be overstated and
cement utilization rate would be understated. Competition
could be less severe than our assumption and thus pricing
power would be higher than we predicted.
Company Focus
Semen Indonesia
Domestic sales volume assumption. Our base case

assumption for SMGRs domestic sales volume is 27.4m
tons for this year, implying 93% utilisation rate. Our
sensitivity analysis indicates that a +/-5% change in sales
volume would change NPAT by +/-7.2%.
EBITDA margin. Our base case assumption for SMGR is

30%. If we raise/lower our base margin assumption by
50 bps, NPAT would change by 2.4%.
Sensitivity Analysis on Domestic Sales Volume
Domestic sales volume

Domestic sales volume (in 000 tons)
Implied vol growth
Utilization
Revenue (in Rp bn)
EBITDA (in Rp bn)
NPAT (in Rp bn)
Impact on NPAT
FY15 base case

27,396
3.4%
92.6%
29,767
8,704
5,766
-5%
26,027
-1.7%
87.9%
29,193
8,144
5,352
-7.2%
+5%
28,766
8.6%
97.2%
30,341
9,264
6,181
7.2%
Sensitivity Analysis on EBITDA Margin
EBITDA margin
Revenue (in Rp bn)
EBITDA (in Rp bn)
NPAT (in Rp bn)
Impact on NPAT
Page 37
FY15 base case

(30%)
27,396
8,704
5,766
50bps lower
27,396
8,567
5,629
-2.4%
50bps higher
27,396
8,841
5,903
2.4%
Company Focus
Semen Indonesia
Key Assumptions
FY Dec
2011A
2012A
2013A
2014F
2015F
2016F
Domestic Sales Volume

(in 000 tons)
19,586
22,477
25,450
26,485
27,396
28,880
Domestic ASP/tonne (in

Rp)
819,929
850,692
904,542
954,291
33.0
35.0
33.1
31.1
30.0
28.8
2011A
2012A
2013A
2014F
2015F
2016F
16,179
19,195
24,152
26,614
28,439
31,225
200
404
370
518
596
686
16,379
19,598
24,522
27,132
29,035
31,910
4,808
5,947
6,998
7,100
7,278
7,560
29
162
(26)
104
119
137
4,838
6,109
6,972
7,204
7,397
7,697
EBITDA margin (%)

Segmental Breakdown
FY Dec
978,149 1,017,275
Revenues (Rp bn)

Cement
Others
Total
Operating profit (Rp bn)
Cement
Others
Total
Operating profit Margins
(%)
Cement
29.7
31.0
29.0
26.7
25.6
24.2
Others
14.7
40.0
(7.0)
20.0
20.0
20.0
Total
29.5
31.2
28.4
26.6
25.5
24.1
Source: Company, DBS Vickers
Page 38
2015
Domestic sales
volume +/- 5%
EBITDA margin +/50bps
Net Profit +/7.2%

Net Profit +/2.4%
Cement contributes 98%

of SMGRs revenue
Company Focus
Semen Indonesia
Income Statement (Rp bn)

FY Dec
2011A
2012A
2013A
2014F
2015F
2016F
Revenue
16,379
19,598
24,501
27,132
29,035
31,910
Cost of Goods Sold
(8,892)
(10,301)
(13,557)
(15,445)
(16,686)
(18,757)
7,487
9,298
10,944
11,687
12,349
13,153
25.0%
(2,649)
(3,189)
(3,972)
(4,484)
(4,951)
(5,456)
23.0%
4,838
6,109
6,972
7,204
7,397
7,697
55
73
91
80
80
80
Associates & JV Inc
15
28
35
39
43
49
183
78
(177)
(67)
(61)
(19)
Gross Profit
Other Opng (Exp)/Inc
Operating Profit

5,090
6,287
6,920
7,256
7,459
7,806
(1,135)
(1,361)
(1,566)
(1,642)
(1,688)
(1,767)
(30)
(79)
16
(10)
(5)
Pre-tax Profit
Tax
Margins Trend
Minority Interest
Preference Dividend
3,926
4,847
5,370
5,604
5,766
6,040
Net Profit before Except.
3,926
4,847
5,370
5,604
5,766
6,040
EBITDA
5,402
6,869
8,099
8,451
8,704
9,197
Revenue Gth (%)
14.2
19.7
25.0
10.7
7.0
9.9
EBITDA Gth (%)
8.7
27.2
17.9
4.4
3.0
5.7
Opg Profit Gth (%)
7.8
26.3
14.1
3.3
2.7
4.0
Net Profit Gth (%)
8.1
23.5
10.8
4.4
2.9
4.7
Gross Margins (%)
45.7
47.4
44.7
43.1
42.5
41.2
Opg Profit Margin (%)
29.5
31.2
28.5
26.6
25.5
24.1
Net Profit Margin (%)
24.0
24.7
21.9
20.7
19.9
ROAE (%)
29.7
30.5
28.1
24.9
22.4
18.9
20.8
ROA (%)
22.3
21.0
18.7
17.2
16.1
15.3
ROCE (%)
25.2
24.6
22.5
20.5
19.0
17.8
Div Payout Ratio (%)
50.0
45.0
45.0
45.0
45.0
45.0
Net Interest Cover (x)
NM
NM
39.4
108.3
120.7
408.4
Net Profit
33.0%
31.0%
29.0%
27.0%
21.0%
19.0%
17.0%
2012A
2013A
Operating Margin %
2014F
2015F
Growth
Margins & Ratio
Page 39
2016F
Net Income Margin %
We expect margins and

ROE to decline as
competition intensify
Company Focus
Semen Indonesia
Quarterly / Interim Income Statement (Rp bn)

FY Dec
2Q2013 3Q2013 4Q2013
3Q2014
8,000
25%
7,000
20%
6,000
15%
5,000
10%
4,000
5%
(4,006)
(3,503)
(3,620)
(3,776)
2,661
2,694
3,104
2,675
3,088
2,688
3,000
0%
2,000
-5%
1,000
-10%
-15%
Gross Profit
Other Oper. (Exp)/Inc
(900)
(956)
(1,236)
(1,021)
(1,137)
(1,083)
Operating Profit
1,762
1,737
1,868
1,655
1,950
1,604
18
34
32
(75)
26
58
10
(40)
(46)
(55)
(3)
(8)
(27)

Associates & JV Inc
Pre-tax Profit
1,748
1,734
1,855
1,584
1,977
1,642
Tax
(387)
(379)
(452)
(354)
(420)
(326)
(2)
(7)
Net Profit
1,366
1,356
1,406
1,228
1,549
1,320
Net profit bef Except.
1,366
1,356
1,406
1,228
1,549
1,320
EBITDA
2,014
2,014
2,202
1,968
2,271
1,950
Revenue Gth (%)
6.0
1.5
19.1
(13.1)
8.6
(3.6)
EBITDA Gth (%)
7.8
0.0
9.4
(10.6)
15.4
(14.2)
Opg Profit Gth (%)
9.7
(1.4)
7.5
(11.4)
17.9
(17.7)
Net Profit Gth (%)
16.8
(0.8)
3.7
(12.6)
26.1
(14.8)
Gross Margins (%)
45.3
45.1
43.7
43.3
46.0
41.6
Opg Margins (%)
30.0
29.1
26.3
26.8
29.1
24.8
Net Profit Margins (%)
23.2
22.7
19.8
19.9
23.1
20.4
Minority Interest
Revenue
Revenue Growth % (QoQ)
Growth
Margins
Page 40
Margin has been trending

down
3Q2014
(3,275)
2Q2014
(3,217)
1Q2014
6,463
4Q2013
6,708
3Q2013
6,178
2Q2013
7,110
1Q2013
5,969
4Q2012
5,878
3Q2012
Cost of Goods Sold
2Q2014
2Q2012
Revenue
Revenue Trend
1Q2014
Company Focus
Semen Indonesia
Balance Sheet (Rp bn)

FY Dec
Net Fixed Assets
Asset Breakdown (2014)

2011A
2012A
2013A
2014F
2015F
2016F
11,641
16,794
18,863
21,615
23,808
375
1,554
1,958
1,958
1,958
1,958
Cash & ST Invts
3,682
3,317
4,213
3,846
4,433
5,821
Inventory
2,007
2,285
2,646
3,314
3,580
4,025
Debtors
1,864
2,523
2,916
3,229
3,456
3,798
93
106
197
221
240
269
19,662
26,579
30,793
34,183
37,476
41,679
Invts in Associates & JVs

Other LT Assets
Other Current Assets

Total Assets
ST Debt
25,809
350
321
321
321
321
Other Current Liab
2,889
4,475
4,977
5,510
5,893
6,491
LT Debt
1,813
3,222
3,242
2,902
2,562
2,722
344
367
449
449
449
449
14,465
17,347
20,883
24,070
27,314
30,759
Minority Interests
150
818
921
931
936
936
Total Cap. & Liab.
19,662
26,579
30,793
34,183
37,476
41,679
Other LT Liabilities
Shareholders Equity
Non-Cash Wkg. Capital
1,075
439
782
1,254
1,382
1,599
Net Cash/(Debt)
1,869
(255)
650
623
1,551
2,778
Debtors Turn (avg days)
40.4
40.8
40.5
41.3
42.0
41.5
Creditors Turn (avg days)
71.9
86.4
80.9
77.7
79.6
78.3
Inventory Turn (avg days)
79.6
82.1
72.4
76.6
81.8
80.4
Asset Turnover (x)
0.9
0.8
0.9
0.8
0.8
0.8
Current Ratio (x)
2.6
1.7
1.9
1.8
1.9
2.0
1.9
1.2
1.3
1.2
1.3
1.4
CASH
0.0
CASH
CASH
CASH
CASH
Quick Ratio (x)

Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
CASH
0.0
CASH
CASH
CASH
CASH
Capex to Debt (%)
231.3
95.4
71.4
124.1
121.4
115.0
23.4
10.3
19.2
18.0
17.4
NA
Z-Score (X)
Page 41
Debtors 10.1%
Net Fixed
Assets 67.8%
Assocs'/JVs 0.0%
Inventory 10.4%
Bank, Cash
and Liquid
Assets 11.6%
Balance sheet remains

strong
Company Focus
Semen Indonesia
Cash Flow Statement (Rp bn)

FY Dec
2011A
Capital Expenditure
2012A
2013A
2014F
2015F
2016F
5,090
6,287
6,920
7,256
7,459
7,806
4500
Pre-Tax Profit
Dep. & Amort.
4000
3500
564
760
1,127
1,248
1,307
1,500
Tax Paid
2500
2000
Assoc. & JV Inc/(loss)
(111)
436
(585)
(472)
(128)
(217)
1500
1000
(531)
151
Net Operating CF
4,416
5,592
6,047
6,390
6,949
7,323
Capital Exp.(net)
(4,195)
(3,408)
(2,544)
(4,000)
(3,500)
(3,500)
Other Invts.(net)
Chg in Wkg.Cap.
Other Operating CF
(103)
(1,374)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
(131)
Net Investing CF
(4,295)
(4,774)
(2,675)
(4,000)
(3,500)
(3,500)
Div Paid
(1,485)
(1,976)
(2,211)
(2,417)
(2,522)
(2,595)
1,117
831
(112)
(340)
(340)
160
(41)
(26)
(409)
(1,171)
(2,324)
(2,757)
(2,862)
(2,435)
(289)
(354)
1,048
(367)
587
1,388
Opg CFPS (Rp)
763
869
1,118
1,157
1,193
1,271
Free CFPS (Rp)
37
368
591
403
582
644
Chg in Gross Debt

Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Page 42
3000
500
0
2012A
2013A
2014F
2015F
2016F
Capital Expenditure (-)
CAPEX to fund
expansion projects
Company Focus
Semen Indonesia
Valuation
Initiate coverage: FULLY VALUED, TP Rp12,200. We

pegged our TP to 12x FY16F EPS (-1SD of its 5 year mean P/E
to reflect slowing earnings growth). SMGR is currently
trading at 15x 12M forward P/E (5-year mean). We believe
the stock faces derating from current rich valuation given
that its earnings growth will slow down to the lowest level in
more than a decade.
SMGRs 12M forward P/E band
(x)
Peak = 20.6x
20.0
16.0
Average = 14.8
Current =14.9x
12.0
Trough = 9.8x
8.0
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
SMGRs 12M forward EV/EBITDA band
(x)
Peak = 12.9x
14.00
10.00
6.00
Jan-10
Trough = 6.6x
Jan-11
Jan-12
Page 43
Current = 9.9x
Average = 9.9x
Jan-13
Jan-14
Jan-15
Company Focus
Semen Indonesia
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT. DBS Vickers Securities Indonesia ("DBSVI"), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte
Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated
in any form or by any means or (ii) redistributed without the prior written consent of DBSVR.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVI
and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate independent legal or
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Company Focus
Semen Indonesia
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Insights Indonesia Cement Price War On The Horizon

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Indonesia Industry Focus

Indonesia Cement Sector

DBS Group Research . Equity

Unprecedented structural shift will see utilisation

Expect pricing power to weaken; do not discount a

CHONG Tjen San, CFA +603 26043972

Multiplier effect of infrastructure projects will only

Valuations are rich but earnings growths are

Unprecedented structural shift. Indonesias cement industry is

Mkt Cap Target Price Performance (%)

Source: Bloomberg Finance L.P., DBS Vickers, AllianceDBS

Significant new capacity in the next three years

Positive impact from weak energy prices offset by lower ASP

Premium valuation to narrow as oligopoly structure breaks down

suggests those players can afford to be aggressive in their pricing

Rich valuations unwarranted given slower growth and declining

Key risks to our call. 1) Strong property sales. We expect property

Indonesia: Construction spending as % of GDP

Indonesia: Cement domestic consumption breakdown

Source: Semen Indonesia Presentation

Source: Companies, DBS Vickers, AllianceDBS

Indonesia: Possible revision to income tax article 22

Regulations and liquidity tightening risk

Jan-11 May-11 Sep-11

Jan-12 May-12 Sep-12

Jan-13 May-13 Sep-13

Jan-14 May-14 Sep-14

Source: Bank Indonesia (BI), DBS Vickers

Indonesia: Marketing sales of listed property companies

Source: Numbeo, DBS Vickers

House > 70 sqm

Indonesia: maximum Loan-to-Value (LTV) regulation

Source: Bank Indonesia (BI), DBS Vickers

Source: Companies, DBS Vickers

Multiplier effects will take years to kick in

tons) was more than of incremental supply (7.7m tons), pushing

Significant new capacity in the next three years

We are now entering the third phase, where incremental supply

Indonesia cement industry: supply, demand and utiliaation rate

Capacity was flat for >6 years,

Demand (000 tons)

Capacity (000 tons)

Source: Companies, DBS Vickers, AllianceDBS

Indonesia: Utilisation rate will continue to drop as

Incremental effective supply*

Source: Companies, DBS Vickers, AllianceDBS

Indonesia: New installed capacity by location (2015-2017)

Since Western Java is Indocements primary market (c.50%

Source: Companies, DBS Vickers, AllianceDBS

Indonesia cement companies: historical and planned capacities

Semen Merah Putih (Wilmar)

Source: Companies, DBS Vickers, AllianceDBS

Positive impact from weak energy prices offset by lower ASP

Lingering risk of further margin erosion. There will be further

SMGR and INTP: cash cost breakdown

Cement's utilization rate

Distribution, transportation and handling

INTP's EBITDA margin

2014F 2015F 2016F 2017F

Source: Semen Indonesia, Indocement, DBS Vickers, AllianceDBS

Source: Semen Indonesia, Indocement, DBS Vickers, AllianceDBS

Floating electricity and diesel prices imply higher earnings

cut bag cement price by 4-5%. With c.46% market share