Indonesia Cement Plays Attractive on Output Boost: Analyst
The Indonesian government's approval of a long-awaited land acquisition bill in December will speed up land purchases for public infrastructure projects in Southeast Asia's largest economy and boost the country's cement space, according to one analyst.
“Cement will be one of the major plays — more liquid play into the infrastructure sector," Willianto Ie, Head of Equity Research at Nomura Indonesia told CNBC on Friday.
He expects the industry to add capacity to meet growing infrastructure demand.
"Given that the Indonesia cement industry is running closer to 90 percent capacity utilization at the moment, this will be good for those who can add capacity at the right time," Ie said.
Infrastructure bottlenecks have long been viewed as one of the key factors holding back Indonesia's economic growth and Ie says the new bill will accelerate public projects.
"The key problem for Indonesia is that there is not enough infrastructure being built in the past decade and that put Indonesia at the risk of higher economic costs in the sense of the poor logistic systems," Ie said.
Indonesia's domestic cement sales rose by more than 15 percent in January from a year earlier to 4.06 million metric tons. Analysts expect cement sales to hit 53 million metric tons in 2012, up 11 percent from last year, on low interest rates, strong GDP growth and because of the land acquisition bill.
Ie recommends Indonesia's largest cement maker, Semen Gresik, which will boost production capacity by 25 percent in 2012. The firm's increased capacity will help it regain some of the market share it lost in the past because of limited production, Ie said.
Concern over Chinese Competition?
Indonesia's infrastructure growth story has also attracted a number of Chinese cement firms. In May 2011, China National Building Material (CNBM) [3323.HK 11.20 -0.12 (-1.06%) ] announced plans to invest $400 million to build a cement factory on Indonesia's main Java Island.
Ie says he's not concerned about competition from Chinese firms impacting local producers in the near term, because of how long it takes to set up cement production.
"It will take you a year or two to get your land and the limestone in place, it will take you two to three years to build, it'll be five years before anybody can actually put the production on the ground and probably another few years to build your brand equity," Ie said.
"So while [Chinese] competition is a concern in the longer run, but I don't think it's a concern for the next two to three, five years."