Wednesday, November 16, 2011

PT Indocement Tunggal Prakarsa Tbk

by Kresna Securities

Investment Thesis

We downgrade our recommendation to HOLD, given a recent rally in the share price (over the past three weeks), now only leaving a 9.2% upside potential to our 12-month TP of Rp16,650. 9M11 results were in line with our projection, and accounted for 73.6%-76.1% of our FY11E. With a net cash balance of Rp5.8tr (as of Sep11), INTP is the richest cement company in Indonesia. Again, this will give company the luxury of taking an aggressive expansion stance.

Currently, INTP is trading at FY12 P/E of 15.5x (vs SMGR’s 13.8x and SMCB’s 14.3x) and PEG of 4.6x (vs SMGR’s 4.2x and SMCB’s 2.0x).

Key Catalysts

3Q11 revenue rises 1.8% QoQ. The company posted Rp3.4tr revenue in 3Q11, only ticked up by 1.8% QoQ, supported by a 1.6% QoQ growth in cement prices to Rp799/kg. Meanwhile, cement sales volume and ready mix-concrete sales flat at 3.9m tons and Rp328.0bn in 3Q11, respectively.

Improving operating margin in 3Q11. Amid increasing raw material (+11.4% QoQ) and energy cost (+10.4% QoQ), the company success to maintain its gross margin at around 46% (only slid by 0.2% QoQ). One of the reasons is the 2.8% QoQ increase in 3Q11 domestic selling price to Rp822/kg. Moving on to operating level, 3Q11 operating margin improved by 0.6% QoQ to 31.5% on the back lower operating expenses (opex) of 3.4% QoQ, particularly from salary and wages expenses (as a bonus was booked in 2Q11).

Declining net interest income erodes growth at net profit level. However, bottom line performance was distracted by net interest income, which posted a decline of 9.5% QoQ, as the result of declining cash in 3Q11, to Rp5.8tr from Rp6.2tr in 2Q11. This has caused 3Q11 net profit to post a mere 0.0% QoQ growth, vs +3.7% QoQ on the operating profit level.

9M11 result in line, cut to HOLD due to robust share price rally. Revenue and net income were still in line with our forecast: revenue accounts for 76.1% of our FY11E while gross, operating and net profit has reached 74.6%, 74.1% and 73.6% of our FY11E. However, we downgrade our rating on the counter to HOLD as recent rally in the share price only leaves 9.2% upside potential from our 12-month TP of Rp16,650.

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