ICG carefully selects its cement plant sites in areas deemed profitable, taking into account: demand and supply capacity of cement in the operating region, transportation costs, and conditions of the surrounding cement plants. In Tajikistan, the operation is faced with political instability in Afghanistan. Export sales to Afghanistan are expected to decline by 25% - 50% compared to the first half of 2021. ICG is mitigating the effect by putting in more effort in the domestic market. Maintain BUY. Encouraged by the solid first-half showing, we raised our topline estimates by 4.5% and 2.6% and bottom-line estimates by 43.4% and 44.3% for FY21E and FY22E, respectively. Our target price of S$0.089 per share reflects our optimism that ICG will continue to benefit from its exposure to the nascent Central Asia infrastructure sector. 

Market Cap S$166.3 million Price (31 August 2021) S$0.029
52-week range S$0.024 &ndash S$0.097
Target Price S$0.089
Shares Outstanding 5,734.7 million
Free Float 37.1%

Major Shareholder Victory Gate Ventures 54.9%
Ma Zhaoyang 3.8%
Zhang Zengtao 3.8%

Demand for cement to remain high in Central Asia ICG&rsquo s 1H21 results came ahead of our estimate as the Group recorded a 34.6% growth in revenue to S$84.9m (56.6% of our FY21E forecasts), spurred on by contribution from the Kazakhstan plant, which began sales in 3Q20. The lower cost of raw materials in Kazakhstan also helped to improve gross margin by 370bp to 43.7%. Overall, the Group booked a 67.5% growth in net profit to S$18.7m (57.4% of our FY21E forecasts). Construction demand remains robust in Central Asia. Demand for construction materials, including cement, is driven by projected plans for reconstruction, urbanization, and infrastructure growth in Central Asia. According to OECBilibrary, Tajikistan has ~US$33.3b of infrastructure investment planned until 2030, ranging across sectors such as energy, transport, mining and quarrying, manufacturing, as well as water supply, and sanitation. The demand for cement is further boosted by China&rsquo s Belt and Road Initiative and the export market. In 2020, Tajikistan produced 4.2Mt of cement and exported ~1.3Mt to neighboring countries, including Uzbekistan, Afghanistan, and Kyrgyzstan. It was reported that the Tajikistan Ministry of Industry and New Technologies had forecasted a 46% increase in cement exports to 1.9Mt per year by 2023. Kazakhstan saw the construction industry grow by 11.2% in 2020 despite the pandemic. According to GlobalData, the total construction project pipeline in Kazakhstan in 2019 is ~US$167b as the government plans to develop the country&rsquo s overall infrastructure, which includes transport infrastructure, healthcare centers and hospitals, solar power plants, and affordable housings. Some of the projects include reconstruction of 10,000km of roads and repair of 11,000km of national highways and 27,000km of state roads by 2025 building 16 new hospitals construction of 50MW of new solar plants in the Karaganda Region and affordable houses for low- and middle-income citizens. With oil prices sustaining at US$69 per barrel, the oil revenue will help to fund these fiscal programs. In 2020, Kazakhstan produced 10.8Mt of cement, breaking the 10Mt market first and being in the right place. As an established cement producer in both Kazakhstan and Tajikistan, ICG will capture the growth in demand in these markets. The Group is also finalizing the purchase of a cement plant in the East Kazakhstan region for ~S$22m in a 60:40 JV with a local partner. The new plant will increase the annual cement production capacity by 1m tonnes and further strengthen the Group&rsquo s foothold in Kazakhstan. It is navigating potential pitfalls. Kazakhstan is currently faced with an overcapacity of cement. It was reported that production capacities in 2020 exceeded the needs of the domestic market by 40.6%. The problem is further worsened by limited export opportunities to neighboring markets as countries are trying to protect the local cement producers. Taking the situation into consideration, ICG carefully selects its cement plant sites in areas that are deemed to be profitable. Some of the factors taken into consideration include the demand and supply capacity of cement in the region, transportation costs, and conditions of the surrounding cement plants. On the other hand, ICG&rsquo s Tajikistan operation is faced with political instability in Afghanistan (13% of 1H2021 revenue), resulting in a decline in construction activity and demand for cement. Export sales to Afghanistan are expected to decline by 25% - 50% as compared to the first half of 2021. ICG is mitigating the effect by putting in more effort in the domestic market. Revenue Breakdown Source: Company Data, SAC Capital Revenue (S$m) 1H21 1H20 Aluminium 4.3 3.9 Cement 80.6 59.2 Total 84.9 63.1 Cement Revenue Breakdown Revenue (S$m) 1H21 1H20 Afghanistan 11.3 9.6 Kazakhstan 25.8 - Tajikistan 43.0 48.1 Uzbekistan 0.5 1.4 Total 80.6 59.2 International Cement Group Ltd. 3 Manpower crunch the biggest bugbear Maintain BUY. Encouraged by the strong first-half showing, we raised our topline estimates by 4.5% and 2.6% and bottom-line estimates by 43.4% and 44.3% for FY21E and FY22E respectively. Our target price of S$0.089 per share reflects our optimism that ICG will be able to continue to benefit from its exposure to the nascent Central Asia infrastructure sector.

SINGAPORE

International Cement Group Ltd (ICG SP): Traditional sector play &ndash Cement and Aluminium

• BUY Entry &ndash SGD 0.028 Target &ndash 0.044 Stop Loss &ndash 0.025
• International Cement Group Ltd., together with its subsidiaries, primarily engages in the production, sale, and distribution of cement in Singapore, Malaysia, Australia, Tajikistan, Afghanistan, Uzbekistan, and internationally. It is also involved in the manufacture and marketing of aluminum extrusions, aluminum panels, and associated architectural aluminum products used for the construction industry.
• The company is backed by strong financials and potential growth through acquisitions. Furthermore, being a traditional sector play, the company is relatively safer compared to other stocks amidst a potentially weaker market in the months ahead. 
• Strong 1H21 financials.  Revenue rose 35% YoY to S$85mn in 1H21, on the back of a 36% surge in revenue from the group&rsquo s cement segment. Net profit jumped by 66.5% to S$18.7mn, while PATMI more than doubled to S$13.0mn, mainly due to favourable foreign currency translation differences. Gross profit margin improved by 4ppts to 44%, contributed by the higher profit margin from Alacem Plant as it benefitted from lower costs in raw materials in Kazakhstan.
• Inorganic growth via cement segment.  The group&rsquo s main revenue driver is from the cement segment, which contributes approximately 94% to 95% of total revenue. On 9 April 2021, Sharcem LLP, a newly incorporated 60% subsidiary of the group, entered into a sales and purchase agreement with Kazakhccement LLP and Development Bank of Kazakhstan to acquire cement-related assets located in Jarminsky district in East Kazakhstan. The plant has an annual production capacity of 1mn metric tonnes and is expected to be completed by end September. Upon completion, the group&rsquo s combined annual cement production capacity in Central Asia will increase from 3mn metric tonnes to 4mn metric tonnes.
• Aluminium segment.  Even though aluminium is a small contributor to the group&rsquo s revenue, approximately making up only about 5% to 6%, there is potential for growth in the short to long-term as Singapore&rsquo s construction industry recovers from Covid-19. Singapore&rsquo s construction industry is forecasted to recover by 30% in 2021, after contracting by 35.9% in 2020. The industry is projected to continue to expand in 2022, registering real growth of 8.1%, and then expand by 3.3% over the remainder of the forecast period (2023-2025). Aluminium prices have rallied since mid-2020, with prices rising above US$2,740 a tonne in September, the highest since May 2011, which could also provide a catalyst to the group&rsquo s revenue from the aluminium segment.

SINGAPORE

International Cement Group Ltd (ICG SP): Traditional sector play &ndash Cement and Aluminium

• BUY Entry &ndash SGD 0.028 Target &ndash 0.044 Stop Loss &ndash 0.025
• International Cement Group Ltd., together with its subsidiaries, primarily engages in the production, sale, and distribution of cement in Singapore, Malaysia, Australia, Tajikistan, Afghanistan, Uzbekistan, and internationally. It is also involved in the manufacture and marketing of aluminum extrusions, aluminum panels, and associated architectural aluminum products used for the construction industry.
• The company is backed by strong financials and potential growth through acquisitions. Furthermore, being a traditional sector play, the company is relatively safer compared to other stocks amidst a potentially weaker market in the months ahead. 
• Strong 1H21 financials.  Revenue rose 35% YoY to S$85mn in 1H21, on the back of a 36% surge in revenue from the group&rsquo s cement segment. Net profit jumped by 66.5% to S$18.7mn, while PATMI more than doubled to S$13.0mn, mainly due to favourable foreign currency translation differences. Gross profit margin improved by 4ppts to 44%, contributed by the higher profit margin from Alacem Plant as it benefitted from lower costs in raw materials in Kazakhstan.
• Inorganic growth via cement segment.  The group&rsquo s main revenue driver is from the cement segment, which contributes approximately 94% to 95% of total revenue. On 9 April 2021, Sharcem LLP, a newly incorporated 60% subsidiary of the group, entered into a sales and purchase agreement with Kazakhccement LLP and Development Bank of Kazakhstan to acquire cement-related assets located in Jarminsky district in East Kazakhstan. The plant has an annual production capacity of 1mn metric tonnes and is expected to be completed by end September. Upon completion, the group&rsquo s combined annual cement production capacity in Central Asia will increase from 3mn metric tonnes to 4mn metric tonnes.
• Aluminium segment.  Even though aluminium is a small contributor to the group&rsquo s revenue, approximately making up only about 5% to 6%, there is potential for growth in the short to long-term as Singapore&rsquo s construction industry recovers from Covid-19. Singapore&rsquo s construction industry is forecasted to recover by 30% in 2021, after contracting by 35.9% in 2020. The industry is projected to continue to expand in 2022, registering real growth of 8.1%, and then expand by 3.3% over the remainder of the forecast period (2023-2025). Aluminium prices have rallied since mid-2020, with prices rising above US$2,740 a tonne in September, the highest since May 2011, which could also provide a catalyst to the group&rsquo s revenue from the aluminium segment.