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Wednesday, May 18, 2011

Solid Result in 1Q11 – As Expected - PT. Indocement Tunggal Perkasa

by Lauthandana Securities

During the first three months this year, Indocement’s revenue grew by 15.5% YoY reaching Rp 2.9 trillion compared to Rp 2.6 trillion in 1Q10. Its net profit also grew by 10% YoY from Rp 787 billion to Rp 865 billion.

Indocement’s domestic cement volume increased by 8.4% YoY in 1Q11 reaching 3.2 million tones (vs 2.9 million tones in 1Q10), while its export volume soared by 68.4% YoY from 96,733 tonnes to 162,938 tonnes.

Comments

This solid 1Q11 performance was fuelled by total cement volume increase (+10.2% YoY) coupled with average selling price (ASP) increase of 4.7% YoY (registered at Rp 865k per ton vs Rp 826k per ton in 1Q10). In term of domestic market share, the company still maintains 31% of market share, which is the largest share for a single entity cement producer in Indonesia.

In all, Indocement results came in line with our projection.  Its 1Q11 revenue and net profit figures have covered 24% and 24%, respectively, to our full year forecast of Rp 12.4 trillion in revenue and Rp 3.6 trillion in net profit.

On the profitability side, Indocement booked a lower gross margin (48.9% in 1Q11 vs 51.9% in 1Q10) mainly due to rising fuel cost (increase of coal price), which directly increased production cost (+11.3% YoY) from Rp 397k to Rp442k per ton. Meanwhile, operating and EBITDA margins have also slipped by 240 bps and 307 bps, respectively, at the level of 36.0% and 41.5%, caused by operating expenses increase of 10.0% YoY (particularly in transportation cost).

The increase of energy prices, particularly coal, would suppress Indocement’s profitability.  Note that 30% of production cost is allocated to energy usage. However, with the strengthening of Rupiah and an expected higher ASP, we believe that these factors will absorb the impact of coal price hike. Therefore, the company’s profitability in 2011 is projected to be relatively stable compared to the previous period.

Recommendation

We maintained our fair value of Rp 18,500 per share (based on 10 years DCF methodology) and did not change our forecast due to the inline 1Q11 result. At yesterday’s closing price, the stock has rallied by 13% since our previous report (released on 24 March 2011) and currently trading  at PE of 17.58x FY11 and EV/EBITDA of 10.85x FY11, while our fair value only offered 9% upside potential. Hence, we downgraded our BUY recommendation to HOLD recommendation.

The down risk: higher energy prices and lower than expected volume sales (due to the unpredictable weather and seasonal Lebaran Holiday).

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