PT. Indocement Tunggal Prakarsa, Tbk (INTP)
Equity Research Report, December 3
rd, 2015
INTP’s price movement is underperforming JCI JKSE in the last 12-months with 1.5 - 1.8 Beta.
Analysts:
Robertus Yanuar Hardy
robertus@reliance-securities.com +6221 5790 5455
Shanti Dwi Jayanti
Financially Healthy Company Expecting Cement Industry
Recovery Next Year
In our view, being one of the largest market share holder with strong brand image of “Semen Tiga Roda” is a benefit for the company. Nation-wide distribution channels will ensure product‟s availability to various regions of the country. INTP is also consider financially healthy because of it‟s low leverage.
9M2015 financial performance and other latest updates
Revenue declined 9% to Rp12.9 trillion in the first 9-months of this year, from Rp14.2 trillion in the same period last year, due to a 7.5% decline of sales volume and ASP adjustment earlier this year after government decided to lower SOE’s cement selling price. A significant increase in leasing costs and other operating expenses that are mainly related with foreign currency then squeezed profit margins so net income falling 14% to Rp3.2 trillion from Rp3.7 trillion. Currently the company is still focusing to finish the construction of its latest brownfield plant located in Citeureup (Bogor, West Java). This is the 14th
production facility for the company across the country and scheduled to be fully operating in the 1st quarter of next year, and will add up to 4.4 million tons of
annual production capacity. As for the Pati (Central Java) project, the company will review its feasibility next year regarding the recent decision from the State Administration Court who decided to grant the community’s law suit against the company. The company has also reviewed several locations as possible options to build production facilities In the future, between a brown field factory in Tarjun (South Kalimantan) or a green field in North Sumatra. With Rp6.5 trillion, or approximately US$471 million of cash reserve, the company could only use internal funding to begin the projects.
Opportunities and challenges in the future
Other than the Government’s instruction for SOE cement producers to lower ASP earlier this year, the restriction of using subsidized fuel starting at the end of last year, and increasing electricity fare are also several key factors that add difficulties for INTP regarding most of its COGS is from fuel & energy (Exhibit 1). In order to increase fuel efficiency, the company has already start to operate energy saving vertical raw mill, and also using gas and steam turbine to supply energy in its Citeureup plant.
Possible challenges in the future could also come from the addition of several new cement producers (Exhibit 4). The company has already proven itself resilient to a price war initiated by Anhui in Kalimantan, because Tarjun factory still have the highest cost efficiency to compete with other brands in the island. We expect the groundbreaking of several strategic infrastructure projects by the Government recently could affect other related sectors, especially property, to grow together next year. With its high quality products, and as the only producer of white cement in the country, we believe Indocement could maintain market share and entering several infrastructure and property projects across the country as a provider of cement and concrete materials. We expect INTP’s portland cement type II and V that are suitable for underwater construction project could support government’s infrastructure development plans, especially in building several sea ports across the country in the future.
Rating and Valuation
We are maintaining a Buy rating with target price at Rp22,000 implying 16.4x of 2016E P/E Ratio, which also in line with the company’s average P/E Ratio in the last 5 years. At this current price level, INTP is trading at 14.9x of 2016E P/E Ratio. Possible addition of production volume in the future is a good opportunity to maintain market share. Nation-wide product availability with strong brand image is also an advantage. Healthy financial structure makes the company more unimpeded to continue expanding by only using internal funding.
Risks to our estimates
Other than the possibility of ongoing price war from new competitors, we see currency volatility could be a problem for the company’s financial performance,
Current Price (Rp) 19,925
2016E P/E 14.9
Target Price (Rp) 22,000
2016E P/E 16.4
Basic Indust ry, Cement
Bloomberg ticker INTP:IJ
Reuters ticker INTP.JK
52-w eeks-high (Rp) 25,675
52-w eeks-low (Rp) 16,000
Shares Outstanding (mn shares) 3,681
Daily average vol ('000 shares) 2,481
Daily average val (Rp bn) 47.0
Daily average val (US$ mn) 3.4
USDIDR 13,800
Current JCI JKSE 4,537
Market Cap (Rp tn) 73.3
Market Cap (US$ bn) 5.3
Major Shareholders:
Birchw ood Omnia Ltd 51%
PT Mekar Perkasa 13%
Public 36%
Relat ive Performance vs JCI JKSE:
Buy
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HEAD OFFICE Domest ic Cement Market Share, 9M 2015. SMGR 42.8% INTP 28.2% SMCB 14.2% Bosowa 5.1% Andalas 3.0% SMBR 2.5% Ot hers 4.2%Domest ic Cement Product ion Capacit y
Year 2015 (mn ton p.a.)
SMGR 30.0 INTP 25.9 SMCB 12.1 Andalas 1.6 SMBR 2.0 Bosow a 6.0 Kupang 0.5 Jui Shin 2.0 Puger 0.3
Year 2016E* (mn ton p.a.)
Merah Putih 4.0 Anhui Conch 1.7 Siam Cement 1.8 Pan Asia 1.8 TOTAL 2016E 89.7 *possible addition
Exhibit 1: 86% of the company’s revenue are generated from cement sales, where more than 70% is from bagged cement sales, and the rest is from bulk cement sales.
Manufacturing overhead contributes the largest to COGS, reaching almost 86%. The weakening of Rupiah exchange rate has also contribute to the increase of several costs, regarding some of the raw materials is still have to be imported, or using foreign currency as benchmark pricing.
Exhibit 2: Domestic cement consumption slightly declined 0.4% in the first 10-months of this year. However, we expect full year achievement will at least equal last year at 59.9 mn tons, and starting to gain some growth next year, following the groundbreaking of most of the government infrastructure projects recently. With wide product distribution across the country, we expect INTP could be one of the provider for cement and concretes in several projects, regarding its high quality products, especially as the only white cement producer in the country.
Exhibit 3: INTP is currently one of the largest market share holder in domestic cement sales. Together with SMGR, the company is dominating more than 70% of the country’s cement market. We consider both companies as primary benchmark for others, in terms of product price and business achievements.
Exhibit 4: There will be a tougher challenge for companies in national cement industry in the future, where the possible addition of production capacity from several new players will also increase competition. However, with healthy balance sheet and ways to increase efficiency, we expect INTP could survive from possible tougher competition in the future.
Sources: Company’s report, ASI, Bloomberg, Reliance Research.
PT. Indocement Tunggal Prakarsa, Tbk (INTP)
Revenue Cont ribut ion
(Rp trillion) 9M2014 9M2015 Change Cont ribut ion
Cement Sales 12.95 11.76 -9.2% 86.1% Ready mix concretes 2.02 1.82 -9.7% 13.3% Aggregates 0.091 0.085 -6.6% 0.6%
Cost St ruct ure
(Rp trillion) 9M2014 9M2015 Change Cont ribut ion
Raw materials 1.84 1.73 -5.7% 24.0% Direct labor 0.71 0.69 -2.3% 9.5% Fuel and power 3.10 2.87 -7.5% 39.8% Manufacturing overhead 1.47 1.37 -6.8% 19.0% Packing cost 0.59 0.55 -6.5% 7.6%
PT. Indocement Tunggal Prakarsa, Tbk (INTP)
Exhibit 5:
Income St at ement Balance Sheet
(Rp bn) 2014 2015E 2016E 2017E (Rp bn) 2014 2015E 2016E 2017E
Revenue 19,996 18,470 19,394 20,460 Cash & cash equivalents 11,256 10,030 10,428 11,250
Gross Profit 9,087 8,291 8,754 9,286 Trade receivables 2,671 2,828 3,040 3,268
Earning Before Tax 6,790 6,015 6,390 6,820 Inventories-net 1,666 1,723 1,981 2,278
Earning After Tax 5,274 4,652 4,942 5,275 Advances and deposits 314 315 323 331
Net Income 5,271 4,650 4,939 5,272 Prepaid taxes 8 12 13 13
EPS 1,432 1,263 1,342 1,432 Prepaid expenses 42 116 119 122
Other Current Financial Assets 130 64 74 85
Current Price (Rp) 19,925 TOTAL CURRENT ASSETS 16,087 15,088 15,978 17,347
P/E 14.9 Deferred tax assets-net 30 34 60 105
Target Price (Rp) 22,000 Long term investments 109 102 104 107
P/E 16.4 Fixed asset-net 12,144 15,097 17,835 20,367
Intangible Assets 15 16 16 16
Rat ios & Margins: Other NC Financial Assets 75 19 22 25
Revenue grow th 7.0% -7.6% 5.0% 5.5% Other non-current assets 422 163 188 216
Gross Profit margin 45.4% 44.9% 45.1% 45.4% TOTAL NC ASSETS 12,798 15,435 18,229 20,841
Net Profit margin 26.4% 25.2% 25.5% 25.8% TOTAL ASSETS 28,885 30,524 34,207 38,187
Net Profit grow th 5.2% -11.8% 6.2% 6.7% Trade payable 1,175 773 869 978
ROA 18.2% 15.2% 14.4% 13.8% Other payables 520 503 566 637
ROE 21.3% 17.0% 16.1% 15.4% Customer's deposit's 67 22 33 50
BVPS 6,733 7,421 8,324 9,288 Accrued expenses 1,056 469 586 732
DPS 501 442 470 501 Taxes payable 271 204 230 259
DPR 35.0% 35.0% 35.0% 35.0% ST employee benefit liab 123 92 101 110
Current mat of finance lease 49 64 73 82
CASH FLOWS TOTAL CURRENT LIABILITIES 3,261 2,127 2,457 2,847
Net Income 5,271 4,650 4,939 5,272 Finance lease 76 69 66 63
Depreciation & Amortization 759 901 924 947 Deferred tax liabilities-net 387 356 338 321 Changes in Working Capital (219) (822) (187) (202) LT Employee Benefit Liab 309 584 640 701
CF from Operat ion 5,811 4,729 5,676 6,016 LT Provision 68 67 65 62
Dividend (3,313) (1,845) (1,627) (1,729) TOTAL NC LIABILITIES 840 1,076 1,109 1,147
Changes in Equity (151) (270) 9 9 TOTAL LIABILITIES 4,100 3,204 3,566 3,995
Loans, Debts, and Leases (35) 8 5 6 Capital stock 1,841 1,841 1,841 1,841
CF from Financing (3,499) (2,107) (1,613) (1,714) Additional paid-in capital 2,699 2,699 2,699 2,699 Investments (53) 6 (3) (3) Other comprehensive income 85 (184) (175) (166)
Capex (3,597) (3,854) (3,662) (3,479) Retained earnings 20,160 22,965 26,276 29,819
CF from Invest ment (3,651) (3,848) (3,665) (3,482) Appropriated 350 375 400 425
Net Cash Flow s (1,339) (1,226) 398 821 Unappropriated 19,810 22,590 25,876 29,394
Cash at the beginning of the year 12,595 11,256 10,030 10,428 SUB TOTAL EQUITY 24,785 27,320 30,641 34,193
Cash at the end of the year 11,256 10,030 10,428 11,250 TOTAL EQUITY 24,785 27,320 30,641 34,193
9M 2014 9M2015 Revenue 14,167 12,886 growth -9.0% Gross Profit 6,362 5,752 margin 44.9% 44.6% Net Profit 3,729 3,218 margin 26.3% 25.0%
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