Domestic cement demand growth grew 9%YoY in August: Including the 80%YoYgrowth in exports, total cement sales grew by 12%YoY. These numbers indicate thatthe demand growth has been sustaining momentum seen since the start of 2Q17.    Volumes have grown by 8%YoY (10%YoY including exports) during the last fivemonths. SMGR, our only Buy in the sector, reported August volumes growth of11%YoY but INTP’s volumes grew by only 3%YoY and under-performed the market.    Unlike SMGR, INTP’s exposure to relatively weaker growth areas with greatercompetition as well as lack of export strategy continues to impede its volume growth.    We remain optimistic about cement demand growth in Indonesia: We identifiedIndonesia as the most promising cement market in ASEAN in our recent sector report(see …all fall down…except one published on 17 August, 2017). A recovery in thecountry’s trade balance has typically preceded previous recoveries in cementdemand and the former continues to indicate brighter prospects ahead. In addition,benchmark interest rates have been cut to their lowest ever and property volumes inthe country have contracted for almost four years; i.e. both the pent-up demand andthe trigger to stimulate it are present. Thus, our Indonesian demand growth forecastfor 2H17-2018 remains around c9%YoY.    Likely rapid recovery in utilization & margins ahead, Buy SMGR: With cement ASPslipping below USD60/MT in 2Q17, the profitability of most players other than the Top-2has deteriorated to a level where we believe prices and margins are at a bottom and canonly go up. With no incremental supply coming in the market over next three years, arapid recovery in utilization, ASP and margins is likely, in our view. In this backdrop,relatively inexpensive valuations make SMGR a compelling Buy.

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