CEMENT

CEMENT SECTOR 6 May 2010

Semen Gresik courting CIMA again?

Sector report NEUTRAL
Mak Hoy Ken
mak-hoy-ken@ambankgroup.com
603 2036 2294 Rationale for report: Sector update

• Indonesia’s PT Semen Gresik Tbk (Semen Gresik) is in negotiations to buy Cement

Industries of Malaysia Bhd (CIMA), according a report by Reuters. While declining to name a
Quick Take
specific acquisition target, the report quoted Semen Gresik’s President Director Dwi
Soepjipto as saying that the group was looking to buy a Malaysian cement producer with an
annual production capacity between two million to three million tonne.

• Semen Gresik’s interest in CIMA is not something new. Early last year, the Indonesian media
had reported that Semen Gresik was lining up several cement companies as potential
acquisition targets – including CIMA.

• To fund the deal, Semen Gresik has set aside circa Rp350 million (US$388mil). However, the
total amount to be raised could be higher depending on how large a stake it gets to buy. We
understand that Semen Gresik is seeking a controlling stake in any of its potential targets.
Semen Gresik would likely fund the purchase through a combination of cash and
borrowings. Based on its annual report ending 31 December 2009, the group has about
US$580mil cash in its kitty.

• Latest development appears to be a strategic move by Semen Gresik to: (1) Gain a deeper
foothold into the ASEAN market; (2) Expand its existing capacity through acquisitions of
brown field cement manufacturing plants to meet Indonesia’s growing cement demand –
expected to rise by a stronger 9% this year against its previous forecast of 6%-7%.

• Semen Gresik is Indonesia’s largest cement maker with a 45% market share – followed by
PT Indocement Tunggal Prakarsa Tbk (30%) and PT Holcim Indonesia Tbk (15%) at second
and third respectively. Semen Gresik is operating close to full capacity at 19 million tonne.

• We gather that CIMA – the cement-manufacturing arm of the UEM group – has a market
share of 18% in Malaysia. CIMA has two plants in Malaysia (Bukit Ketri, Perlis and Bahau,
Negeri Sembilan) - with a total clinker capacity of 2.8 million tonne.

• But we reckon Semen Gresik’s strategic move for CIMA is unlikely to trigger further mergers
& acquisition (M&A) activities within Malaysia’s cement industry – which has already
undergone a major round of consolidations from the mid-1990’s until the mid-2000’s.

• Post-consolidation, the Malaysian cement industry is now dominated by four players – i.e.
CIMA, Lafarge Malayan Cement Bhd (Lafarge), YTL Cement Bhd (YTL Cement) and Tasek
Cement Bhd (Tasek). Not unlike CIMA, the other three are integrated cement producers with
healthy balance sheets – backed by a strong parent. Hence, there is no real push factor for
them to sell out unless the offer is substantive, in our view.

• We maintain our NEUTRAL on the cement sector – and keep our HOLD call on Lafarge
(FV=RM6.85/share). For exposure to the building materials theme, we prefer the steel sector.
Published by The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this
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Managing Director
 CEMENT SECTOR 6 May 2010

TABLE 1 : MAJOR INFRASTRUCTURE PROJECTS IN MALAYSIA

PROJECT Value Contractor/ Award date/ Clients/
(RMmil) Potential Contractor Expected award date Owners
Pahang-Selangor raw water transfer
> Kelau dam & related works 1,100 Japanese-led consortium: end-2H10 Federal Government
Sub-contractor: Gamuda (Civil)
Loh & Loh (M&E)
> Water intake/Semantan pumping station (Package 3A) 400 George Kent-Loh & Loh-Hazama JV

> Piping works 300 JAKS submitted joint bid with another local end-1H10
contractor on a 40:60 basis.

Klang Valley LRT extension/upgrade Civil (UEM, MMC, Gamuda, IJM, WCT, MRCB) SPNB
> Ampang/Kelana Jaya line extensions 7,000 M&E (Bombardier, Siemens, Balfour Beatty, end-2Q10/3Q10
> New Cheras-Kota Damansara line 11,800 Ansaldo Systems) 2011/2012
Sub-contractor: Scomi, Global Rail Sdn Bhd
Fajarbaru builder
- 1st package: Kelana Jaya Line (9km) by June
- 6 parties shortlisted: including UEM, IJM
and Putrajaya Perdana

Langat 2 Water Supply Scheme 4,500 WTP (Gamuda, Loh & Loh) 2H 2010 PAAB
(WTP, piping, reservoir works) Pipeline (local consortium, JAKS)

Bakun transmission line: 6,000 Undersea cable: Foreign entities 2H 2010 Federal Government
3,000 Land transmission: MRCB

West Coast Expressway 3,100 K.Euro, IJM 2010/2011 Konsortium LPB

New LCCT Terminal:

> Terminal/Satelite building/parking apron 1,100 UEM-Bina Puri JV, Sunway, IJM 2Q09-3Q09 MAHB
Gadang-PPC JV, AHT Norlan-Carriage
> Parking apron 200.0 Gamuda, WCT, Fajar
> Runway 500.0 Gamuda, WCT, Fajar

Gemas-Johor Bahru Double Tracking project 5,000 Global Rail Sdn Bhd- 4Q 2010 Federal Government
China Infraglobe Consortium

Mengkuang Dam, Penang 1,200 Chinese contractors 2010 Federal Government

Kuching Wastewater/sewerage project (Packages 2-4) 2,000 Hock Seng Lee 2010-2011 Sarawak state govt

Kuching Flood Mitigation project (later phases) 1,150 Naim Cendera 2010-2011 Sarawak DID

Aluminium Smelter Plant (Similajau, Sarawak) 7,000 N/A N/A Salco

New Mukah airport 600 Global Upline, Sarawak contractors 2H 2010 STIDC

Tanjung Manis port extension works 350 HSL 2H 2010 STIDC

Kaiduan Dam Papar (Sabah) 2,800 WCT 2011 Sabah state govt

Hulu Terengganu Dam Project 900 Loh & Loh 1Q-2010 Federal Government
Source: Various, AmResearch

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 CEMENT SECTOR 6 May 2010

TABLE 2 : MAJOR INFRASTRUCTURE PROJECTS IN MALAYSIA (CONTINUED)

PROJECT Value Contractor/ Award date/ Clients/
(RMmil) Potential Contractor Expected award date Owners
Hulu Terengganu Dam Project 900 Loh & Loh 1Q-2010 Federal Government

Murum Dam access roads (packages 3-5) 553 HSL, Sarawak contractors 2H 2010 Federal Government

Nanga Merit Road 1,400 HSL, Sarawak contractors 2H 2010 Federal Government

Miri-Baram road 1,000 HSL, Sarawak contractors 2H 2010 Federal Government

Ba' Kelalan road 700 HSL, Sarawak contractors 2H 2010 Federal Government

Bakun road to proposed Murum Dam 2,000 Sarawak contractors 2H 2010 Federal Government
Bintulu/Tunoh/Balleh/Kotai road; and
Kapit/Song/Sibu road

Batang Sadong Bridge 180 HSL, Sarawak contractors 2H 2010 Federal Government

Sibu Airport Expansion 150 IJM, Gamuda, TRC, Muhibbah, Musyati July MAHB
Total 65,983
Source: Various, AmResearch

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