SGX Market Dialogues

10 in 10 With International Cement Group - Tapping Growth Opportunities in Central Asia

SGX
Publish date: Tue, 28 Jan 2025, 02:12 PM

P1ICG Korcem

10 Questions for International Cement Group

1. What are some of your business segments, and how are they performing?

  • International Cement Group’s principal business is in the production and distribution of cement in two major countries in Central Asia – Kazakhstan and Tajikistan – accounting for more than 95% of revenue. Towards end of 2023, the Group added the production and distribution of gypsum plasterboard as part of its related business. The production plant is located at the Yovon District, Khatlon Region in Tajikistan. 
  • Between FY2019 and FY2023, the Group’s revenue and pre-tax profit grew at a CAGR of 15% and 7% respectively, attributed to increased sales volume. During this period, the Group was profitable, with gross profit margin ranging between 35% and 38%. It generated positive net cash from operating activities rising from S$50 million in FY2019 to S$79 million in FY2023.  The retained earnings were used, in part, to finance the significant increase in production capacity, expanding our operations from Tajikistan to Kazakhstan and increasing our capacity from 1.8m metric tons to the current 5.5m metric tons. 

2. The Group has seen revenue slip recently, with profits also lower, amid higher competition and production costs. What is the Group doing to improve this situation?

  • The Group has been one of the earliest foreign-owned operators in Kazakhstan and Tajikistan since 2020 and 2017 respectively. Since then both markets have developed (due to demand factors), becoming an attractive investment proposition to other cement operators.
  • Despite increased competition, management believes both markets provide ample growth opportunities as demand for cement is correlated to increase in economic activities. 
  • According to World Bank Group, long-term economic growth for Kazakhstan and Tajikistan are projected to be 3% to 3.5%, and 4.5% to 5% respectively. 
  • ICG’s strategy to increase production capacity, allows us to be one of the major operators. ICG’s distribution network, product differentiation and branding facilitate expansion of our market reach, and to some extent influence pricing. In the long term, ICG aims to reduce our cost structure by increasing productivity and economies of scale, further increasing competitiveness.

3. How does International Cement differentiate itself from other competitors?

  • Strategic location: Cement production’s profitability is highly dependent on proximity to demand due to logistical costs. Compared to our main competitors, our plants are located closer to key demand centers, such as Almaty in Kazakhstan and Dushanbe in Tajikistan, which provides a significant cost advantage. 
  • The newly completed Korcem Plant is strategically located near the Alatau Special Economic Zone (SEZ) - a major emerging economic hub with a projected population of 2 million residents and 1.1 million new jobs - reinforcing the importance of ICG’s strategic locations as a competitive advantage.
  • Vertical Integration and Cost Efficiency: ICG own key resources like limestone mines, which are located close to our plants. We also produce clinkers[1], the essential binding component in cement, created by heating limestone and other minerals at high temperatures, which reduces time-to-market. These advantages reduce our cost structure significantly and ensure constant supply and consistent quality of raw materials. 
  • Scale: The completion of Korcem Plant has resulted in ICG becoming the largest dry-process cement producer in Kazakhstan. It will allow us to play an integral role in the economic development of the country and provide employment. 

4. What strategies is International Cement Group employing to enhance productivity and manage operational costs?

  • By situating plants near demand hubs, ICG reduces transportation costs and ensure timely deliveries. We also consistently review our operations to maintain cost efficiency. 
  • During the off-peak winter season, we focus on optimizing production and labor costs by controlling equipment usage and scheduling personnel effectively. We also plan equipment overhauls strategically during the off-season to ensure continuous operation and cement supply during peak sales season.

ICG Trucks

5. What have been some drivers for revenue growth between 2019 to 2023? How would you expect these drivers to change in 2025 and beyond?

  • Between FY2019 and FY2023, revenue growth was driven by capacity expansions to meet strong demand from regional infrastructure projects. Looking ahead, the Korcem Plant will be a central driver, leveraging on its location near the new SEZ and Almaty to meet growing infrastructure development.

6. What are some notable developments that shareholders can look out for or expect in the near to medium term?

  • The commencement of our latest Korcem plant, increased our total production capacity by 37.5%, which extends our reach in the market and contributes to revenue. Product differentiation, through branding, effective distribution network and high performance, would facilitate us increasing our market share. 
  • Cashflow generated from operations will be used to reduce the Group’s gearing and borrowing cost.

7. Central Asia is often seen as a less familiar region for many investors. Why is this a focus market for International Cement Group, and how does the Group navigate potential challenges?

  • Kazakhstan and Tajikistan are emerging markets with untapped potential. Both countries are experiencing economic growth, infrastructure development, and a demand for housing and construction. Emerging markets like these often present higher returns on investment compared to more saturated markets.
  • On 16 August 2024, Standard & Poor’s rated Tajikistan as “B” outlook stable. On 15 November 2024, Fitch affirmed Kazakhstan at “BBB” outlook stable. Both ratings signify a stable and investment-friendly environment.
  • The Group’s investments in both countries are supported by their respective governments, including granting preferential tax holidays and treatments. Our investments create employment opportunities and contribute to the government’s tax revenue. 
  • Like all emerging markets, regulations are less clear and the Group addresses these concerns by collaborating with trusted local business partners, constantly engaging with government agencies and conducting regular risk assessments to anticipate and mitigate potential issues. 

8. Does the Group see any opportunities for inorganic growth, and what segments or geographies would be of interest?

  • The Group's growth has been organic, expanding its production facilities/capacities, green field construction and commission of the recent Korcem plant and facilities and gypsum plasterboard plant at Tajikistan, and acquiring related businesses (acquisition of Sharcem cement plant and facilities at Jarminsky district in the East Kazakhstan region). 
  • To-date, ICG’s growth strategy has been disciplined and guided by not over-elevating its risk profile, extending and relying on its core competencies (operating cement plant and related facilities) and focusing into businesses where it can further add value or expand its distribution network and customers base. 
  • The markets in which the Group operates offer significant growth opportunities, supported by strong economic potential and infrastructure development needs.

9. With greater focus on industrial emissions of greenhouse gases, how is International Cement managing emissions from production?

  • ICG prioritizes sustainability by adopting energy-efficient technologies, including modern kilns at the Korcem Plant to reduce fuel consumption and emissions. We also lower the clinker-to-cement ratio by using fly ash and slag, minimizing environmental impact and constantly work towards optimizing our productions processes to manage emissions.                            

ICG SIAS

10. Why should investors take a closer look at International Cement?

  • Central Asia is made up of 5 independent countries – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, with a combined population of 83 million people. Our key markets of Kazakhstan and Tajikistan have a combined population of 31.1 million or 37.6% of Central Asia’s population. 
  • Based on the World Bank Group’s estimates, both countries will enjoy growth in the coming years. The Group’s core business – cement – will benefit from these positive factors. Investors in International Cement Group will gain exposure from these developments. Currently, among companies listed on the SGX-ST based on revenue contribution, our Group is the only that can hold itself to be Central Asia centric.

[1] Clinker, the main ingredient in cement, requires high energy to produce, so reducing its use helps cut emissions and conserve resources.

10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

For more, visit sgx.com/research.

For more company information, visit www.internationalcementgroup.com

Click here for International Cement’s 1H24 results release.

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