Indonesia's leading cement manufacturer Semen Indonesia created a joint venture (JV) together with its subsidiary Semen Indonesia Beton. This JV - named Semen Indonesia Industri Building - is active in the building materials sector. Semen Indonesia controls 99 percent of the shares in this new entity, while Semen Indonesia Beton owns the remaining 1 percent.
Agung Wiharto, Corporate Secretary at Semen Indonesia, said Semen Indonesia Industri Building's authorized capital is IDR 4 billion (approx. USD $301,000), while its paid-up capital is IDR 1 billion. These figures may gradually rise in the future in line with the need for development and expansion of the JV. The funds required to establish Semen Indonesia Industri Building originate from the internal cash reserves of both Semen Indonesia and Semen Indonesia Beton.
The new company will become a strategic tool for Semen Indonesia, particularly in the downstream cement industry. But it is also constructed to seize opportunities in the building materials sector of Indonesia and boost synergy between subsidiaries within the Semen Indonesia Group. Semen Indonesia Industri Building will receive the basic materials (cement) from Semen Indonesia and produce building materials with added value.
The move is considered a positive one for Semen Indonesia amid the ongoing fierce battle within Indonesia's cement sector where about a dozen of big cement companies (both local and foreign) compete for market share. Considering (combined) domestic cement production capacity in Indonesia has already surpassed the 100 million tons per year level, while domestic cement demand will not touch 70 million tons in 2017, there exists a major oversupply situation that puts downward pressure on cement prices (and thus on earnings of Indonesian cement producers).
So far, Semen Indonesia has been focused on the upstream cement industry and therefore diversification into the downstream industry (where prices of materials are higher and less volatile) is a positive one that can support the company's future earnings.
Meanwhile, Semen Indonesia is also seeking to acquire cement manufacturers in a move to expand its market share in Indonesia's cement industry. It is particularly interested to acquire some of the nation's small cement manufacturers that are having trouble to stay alive during these tough times. Darmawan Junaidi, Finance Director of Semen Indonesia, said Semen Indonesia is now targeting five companies that have a cement production utilization rate of more than 60 percent of installed annual production capacity.
Reportedly, there are several smaller cement producers in Indonesia that have taken up big loans in recent years for the expansion of production, but saw their sales declining, hence becoming in need of new investors to inject capital into the firm and keep these companies alive. In 2018 Junaidi expects to see consolidation in the nation's cement industry as smaller and troubled manufacturers are eager to be acquired by the big players.
So far this year shares of Semen Indonesia, listed on the Indonesia Stock Exchange, have risen 8.72 percent to IDR 9,975 a piece.
Stock Quote Semen Indonesia - SMGR: