Morgan Stanley Research said it is positive on Indonesia's cement sector as there are signs of higher infrastructure spending and as the industry's growth prospects remained intact, underpinned by higher-than-expected cement consumption in September.
"Accelerated infrastructure spending would not only drive cement demand higher, but would also increase demand sustainability, supporting higher multiples for the cement stocks, as long-term earnings visibility increases," Morgan Stanley said in a note on Friday.
The research house said the industry's underlying growth remains intact despite weaker trends from June to August. But it may not be sustainable and the fall in coal and CPO prices suggests a potential decline in rural incomes, which could affect cement demand negatively.
Morgan Stanley's top pick in the sector is PT Semen Gresik , as the company is best positioned to capitalise on strong demand and deliver above-industry volume and earnings growth. PT Indocement Tunggal Prakarsa also offers earnings growth on higher estimated 2013 volume, it said.
Semen Gresik shares were trading up 0.34 percent at 14,700 rupiah while Indocement shares were trading up 0.72 percent at 21,000 rupiah. The Jakarta Composite Index was up 0.69 percent.
1117 (0417 GMT)
(Reporting by Andjarsari Paramaditha,; Editing by Jijo Jacob)
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Keywords: MARKETS INDONESIA STOCKSNEWS/CEMENT