State-Owned Cement Producer Semen Baturaja Conducts IPO

Indonesia Investments

State-owned cement producer Semen Baturaja invites investors to its initial public offering (IPO) between 29 May and 7 June 2013 at the Ritz Carlton Pacific Place in Jakarta. Through this IPO, the company offers 2.34 billion shares (about 23.76 percent of its stock equity) to the public with an initial price target of IDR 500 - 685 per share (USD $0.05 - $0.07). Semen Baturaja will be listed on the Indonesia Stock Exchange (BEI) on 28 June 2013. The lead underwriters for this IPO are Bahana Securities, Danareksa Securities and Mandiri Securities.

Considering Indonesia's rapidly expanding cement industry, brought on by increasing domestic demand for property and infrastructure projects, it is assumed that Semen Baturaja's IPO will be oversubscribed.

Through the IPO, the Indonesian cement company aims to reap proceeds amounting to IDR 1.40 trillion (USD $142.7 million). These funds will be used for its business expansion. The company plans to construct a new cement factory in South Sumatra, which will need capital expenditure of about IDR 2.65 trillion (USD $270.1 million). Construction will be financed through the company's internal cash reserves (IDR 1 trillion), bank loans (IDR 500 billion), and proceeds from the IPO (at least IDR 1 trillion). The factory is scheduled to commence operations in 2017 and will add about 1.85 million tons of cement to the company´s total cement output.

Net profit of Semen Baturaja is expected to increase by almost 20 percent in 2013 from IDR 299 billion in 2012, while revenue is expected to rise by 16.85 percent to IDR 1.28 trillion. As such, its P/E ratio is assumed to increase 13.5 times in 2013 from 13.5x in 2012. This is below the current average of 17-23x in Indonesia's cement industry.

Initially, the company aimed to conduct its IPO in 2012 but disagreement within the House of Representatives (DPR) - the government institution that needs to approve the IPO - resulted in a temporary postponement.

Currently, Semen Baturaja owns three cement factories in Palembang, Baturaja and Lampung (all on the island of Sumatra) with a total annual production capacity of 1.2 million tons of cement. In June 2013, a new cement mill will start operations and will add an annual 750,000 tons of cement to the company's cement output. After the new factory has started production in 2017, total annual production capacity will be 3.85 million tons of cement. Through this increased capacity, Semen Baturaja aims to get a 51 percent market share in South Sumatra. The company's market is mainly Sumatra (South Sumatra, Lampung, Bengkulu and Jambi).

According to analysts as well as data from the Indonesian Cement Association (ASI), the country's cement consumption will increase significantly in the years ahead. Cement production in 2012 totaled 60.6 million tons, but this number is expected to increase to 78.5 million by 2016.

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