August 21, 2009 / 7:55 AM / 8 years ago

BUY OR SELL-SE Asian cement shares; rock solid or overpriced?

* Sign of demand pick-up in Indonesia, Thailand

* Indocement, Semen Gresik, Siam Cement among top picks

* Bears say expensive, shift to property and steel stocks

(For other Reuters BUY OR SELL items, click [BUYSELL/])

By Viparat Jantraprap and Khettiya Jittapong

BANGKOK, Aug 21 (Reuters) - Shares in Southeast Asia’s major cement makers such as Thailand’s Siam Cement (SCC.BK) and Indonesia’s Indocement (INTP.JK) have rallied this year on hopes of a recovery in demand thanks to government stimulus programmes.

The sector suffered when the global recession took a toll on construction demand but is expected to recover along with regional economies and as low interest rates and better consumer confidence boost housing demand.

Still, sector valuations look stretched as share prices have risen by more than two-thirds and future growth depends on domestic politics and government stimulus packages.


A positive outlook on Southeast Asia’s largest economy, coupled with government stimulus plans should boost cement demand in Indonesia, seen rising 7-10 percent in 2010.

“We are not positive only on the cement sector, but also on the overall economy,” said Ami Tantri analyst at Credit Suisse, adding that a pick-up in cement demand in June and July is expected to be sustained.

Credit Suisse has an “outperform” rating on Indonesia’s top two cement makers -- Semen Gresik (SMGR.JK) and Indocement.

CIMB analyst Rania Rahmundita, who has rated Indocement as a top pick, expects 2010 cement demand to set a record high. She said increases in fuel costs would be offset by the strength of rupiah currency.

Rahmundita has also upgraded Semen Gresik and third-ranked Holcim Indonesia (SMCB.JK) to “outperform”.

Analysts in Thailand are optimistic the government’s infrastructure projects will stimulate building materials demand.

Siam Cement, Southeast Asia’s biggest cement firm in terms of market value, is the top pick for many analysts.

“It’s blue chip. We like it because we think the sector has potential for long-term growth,” said Sukkawat Prasertying, chief investment officer at Manulife Asset Management in Bangkok.

Siam Cement, the cheapest among its regional peers, is trading at an enterprise value per tonne of $94 versus a regional average of $129, while its 2010 estimated return on equity of 24 percent is higher than the regional average of 16.5 percent, said Citigroup analyst Amornrat Cheevavichawalkul.


    Cement bears say the shares are too expensive and optimism about demand growth has already been priced in.

    “We are underweight the sector because we don’t think cement demand will rise significantly in the near term,” said Prapas Tonpibulsak, chief investment officer at Ayudhya Fund Management.

    “Growth may be strong in the next few years. But at the current prices, we don’t think we should jump in at the moment. We will monitor how demand growth is in the next one or two quarters,” Prapas said.

    BBL Asset Management’s head, Voravan Tarapoom, said cement shares were too expensive and prefers some property and steel stocks as a proxy for the building materials sector.

    Last week, Macquarie’s David Gambrill downgraded Thailand’s No.2 cement maker, Siam City Cement (SCCC.BK), to neutral from overweight, saying the turnaround had been priced in.

    Although cement demand in Malaysia is expected to pick up in the second half of this year, the valuation of the country’s top cement maker, Lafarge Malayan Cement LMCE.KL, also looks expensive, DBS analyst Yee Mei Hui said.

    Lafarge has jumped 56 percent this year, outperforming a 33 percent gain in the Malaysian market.

    Lafarge traded at 13.4 times 2010 earnings, versus 11.5 times for Siam Cement, 15 for Indocement and 11.5 for Semen Gresik, according to Reuters data.

    So far this year, Siam Cement shares have risen 84 percent, versus a 42 percent gain in the main Thai stock market. Indocement and Holcim Indonesia shares have more than doubled, outperforming a 71 percent gain in the Jakarta market. Semen Gresik has risen 40 percent. ($1=34.04 Baht) (Additional reporting by Julie Goh in KUALA LUMPUR and Tyagita Silka in JAKARTA; Editing by Valerie Lee)

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