Indonesia Semen Gresik eyes Malaysian deal

JAKARTA: Indonesia's biggest cement producer, PT Semen Gresik, said on Tuesday, May 4, that it is in talks to acquire a Malaysia cement maker this year and has set aside more than 3.5 trillion rupiah (RM1.25 billion) for the deal.

Semen Gresik declined to name its acquisition target, but two sources involved in the deal said it is in talks with Cement Industries of Malaysia Bhd (CIMA), a unit of Malaysia's UEM Group, which has an 18% market share in Malaysia.

"We want to be a regional player and plan to acquire a Malaysian cement producer with a capacity of about 2 to 3 million tonnes a year," said Dwi Soetjipto, Semen Gresik's president director who declined to name the acquisition target.

"It depends on the willingness and pricing of the company that we are targeting as we want a controlling stake in order to create synergy with our group," Soetjipto told Reuters in an interview.

Early last year, local media reported that Semen Gresik was eyeing several potential targets including CIMA, but no deal emerged.

Soetjipto said Semen Gresik has allocated 3.5 trillion rupiah for the deal, adding "it could be more than that depending on how big a stake we get".

The company will use a combination of internal cash and loans, given that it has a low debt ratio. It has US$580 million (RM1.86 billion) in cash as of December 2009, according to its annual report.

"It would be good if CIMA continues to supply [cement] in Malaysia while helping Semen Gresik to provide cement in some parts of Sumatra as demand in Indonesia is bigger than in Malaysia," Alif Sasetyo, a cement industry analyst from PT Mandiri Sekuritas, said.

Semen Gresik's shares, which opened at 8,250 rupiah on Tuesday, rose as much as 3% to 8,500 rupiah by 0445 GMT, the highest level in two years, before easing back.

The shares outperformed the benchmark Jakarta index, which was up around 1% by midday.

The company's share price has increased over 9% so far this year, but has underperformed the broader market, which has risen nearly 17%.

Semen Gresik is seen by investors and analysts as a play on domestic demand in Southeast Asia's biggest economy. It is the market leader in the cement industry, with a 45% market share, compared with 30% for PT Indocement Tunggal Perkasa, the nation's second largest cement maker, and 14% for PT Holcim Indonesia.

Semen Gresik reported a 32% increase in net profit to 3.327 trillion rupiah in 2009. Last week, it reported a 17.8% rise in 1Q net profit to 802.5 billion rupiah.

But Soetjipto said that this year, net profit growth was likely to be below 30% because the company is operating at close to full capacity of 19 million tonnes.

Analysts have forecast 2010 net profit of 3.8 trillion rupiah this year, according to Thomson Reuters I/B/E/S, an increase of about 14% from last year.

However, Soetjipto said he expects the company to resume net profit growth of more than 30% in 2011 as its capacity increases once its new plant in Tuban, East Java, starts up.

National demand for cement is expected to rise 9% this year, he said, higher than his previous forecast of 6% to 7%, mainly because of increasing demand in from property developers and government infrastructure projects.

That would be significantly higher than last year's 2.5% rise in cement demand, but is still lower than 11.5% growth in 2008.

Soetjipto also said domestic demand for cement could increase further if the government issues a long-overdue land acquisition law and Indonesia's central bank keeps its key rate at a record low of 6.5% for a while.

The company currently has three major projects worth up to US$780 million, as part of its US$1.2 billion capital expenditure plans for the next five years.

It has two new cement plants under construction in Tuban, East Java, and Sulawesi, worth US$304 million and US$290 million, respectively. They will add five million tonnes in capacity and are expected to be completed by early 2012.

It is also constructing 70MW power plants in Sulawesi this year, worth US$114 million, which is to be completed in 2012. -- Reuters