Wednesday, November 16, 2011

Holcim Indonesia Tbk

by Kresna Securities

Investment Thesis

We reiterate our BUY recommendation with 12-month TP of Rp2,200. From top to bottom, 9M11 results were still in line with our projection, and accounted for 74.4%-75.8% of our full year forecast. Hence we maintain our forecast at the moment. Adding weight to our recommendation was its performance during 3Q11; SMCB was the sole company under our coverage that recorded positive domestic sales volume, up by 1.3% QoQ to 1.9m tons, while both SMGR and INTP posted negative growth of 1.0% QoQ.

Key Catalysts

· Flat revenue in 3Q11. The company booked 3Q11 revenue growth of 0.6% QoQ to Rp1.9tr, mainly driven by a 1.5% QoQ growth in domestic cement sales to Rp1.6tr and a 200.9% QoQ jump in export cement sales to Rp30.0bn. For concrete & aggregate products, sales dropped by 10.7% QoQ to Rp275.0bn in 3Q11. Year to date, revenue has risen by 26.1% YoY to Rp5.4tr in 9M11, attributable to strong domestic cement sales growth of 33.6% YoY to 5.4m tons amid flat domestic cement price growth of 0.2% YoY to Rp825/kg.

· Improving margin in 3Q11. Lower COGS per unit in 3Q11 has made gross margin expand by 2.8% QoQ to 38.2%, bringing gross profit to a figure of Rp714.1bn, 8.4% higher compared to previous quarter. Lower distribution cost per unit by 3.7% in 3Q11 also led operating margin up by 2.2% QoQ to 23.4%, taking operating profit to Rp437.0bn (+10.8% QoQ). Net margin in 3Q11 advanced by 1.0% QoQ, causing net profit to grow by 8.1% QoQ to Rp268.0bn.

· Domestic sales volume outperforms the industry. In 3Q11, SMCB was the only listed cement company that recorded positive domestic sales volume growth, up by 1.3% QoQ to 1.9m tons vs SMGR and INTP, which both posted negative growth of 1.0% QoQ, and nationally, which posted a decline of 0.8% QoQ. SMCB posted highest sales growth in Sulawesi (+86.9% QoQ), Sumatra (+5.5% QoQ) and Java (+0.5% QoQ).

Earnings Outlook

9M11 results came in as expected. 9M11 revenue and net income of Rp1.9tr and Rp267.8bn were in line with our forecast, accounting for 74.4%-75.8% of our FY11 estimates. The company benefits the most from robust domestic cement demand this year; for 9M11, domestic cement volume jumped by 33.6% YoY, 2x higher than the industry growth of 16.3% YoY and also INTP, its nearest competitor (+16.7% YoY).

Having said that, we maintain our BUY recommendation on the company with a 12-month TP of Rp2,200.

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