PT. Indocement Tunggal Prakarsa, Tbk (INTP) Equity Research Report, December 3rd, 2015
Buy
Financially Healthy Company Expecting Cement Industry Recovery Next Year
Current Price (Rp) 2016E P/E Target Price (Rp) 2016E P/E
19,925 14.9 22,000 16.4
Basic Indust ry, Cement Bloomberg ticker Reuters ticker 52-w eeks-high (Rp) 52-w eeks-low (Rp) Shares Outstanding (mn shares) Daily average vol ('000 shares) Daily average val (Rp bn) Daily average val (US$ mn) USDIDR Current JCI JKSE Market Cap (Rp tn) Market Cap (US$ bn)
INTP:IJ INTP.JK 25,675 16,000 3,681 2,481 47.0 3.4 13,800 4,537 73.3 5.3
Majo r Shareho lders: Birchw ood Omnia Ltd PT Mekar Perkasa Public
51% 13% 36%
Relat ive Perfo rmance vs JCI JKSE: JCI JKSE
INTP
10%
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.
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INTP’s price movement is underperforming JCI JKSE in the last 12-months with 1.5 1.8 Beta.
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.
Analysts: Robertus Yanuar Hardy
[email protected] +6221 5790 5455 Shanti Dwi Jayanti (Research Associate)
[email protected]
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, regarding some of the raw materials and factory machineries are still have to be imported.
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PT. Indocement Tunggal Prakarsa, Tbk (INTP)
Revenue Cont ribut ion HEAD OFFICE (Rp trillion) Cement Sales Ready mix concretes Aggregates Cost St ruct ure (Rp trillion) Raw materials Direct labor Fuel and power Manufacturing overhead Packing cost
9M2014 9M2015 Change Cont ribut ion 12.95 11.76 -9.2% 86.1% 2.02 1.82 -9.7% 13.3% 0.091 0.085 -6.6% 0.6% 9M2014 9M2015 Change Cont ribut ion 1.84 1.73 -5.7% 24.0% 0.71 0.69 -2.3% 9.5% 3.10 2.87 -7.5% 39.8% 1.47 1.37 -6.8% 19.0% 0.59 0.55 -6.5% 7.6%
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.
Do mest ic Cement Market Share, 9M 2015. SMGR 42.8% INTP 28.2% SMCB 14.2% Bo so wa 5.1% Andalas 3.0% SMBR 2.5% Ot hers 4.2%
Do mest ic Cement Pro duct io n 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 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.
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PT. Indocement Tunggal Prakarsa, Tbk (INTP)
Exhibit 5: Inco me St at ement (Rp bn) Revenue Gross Profit Earning Before Tax Earning After Tax Net Income EPS
2014 19,996 9,087 6,790 5,274 5,271 1,432
2015E 18,470 8,291 6,015 4,652 4,650 1,263
Current Price (Rp) P/E Target Price (Rp) P/E Rat io s & Margins: Revenue grow th Gross Profit margin Net Profit margin Net Profit grow th ROA ROE BVPS DPS DPR CASH FLOWS Net Income Depreciation & Amortization Changes in Working Capital CF fro m Operat io n Dividend Changes in Equity Loans, Debts, and Leases CF fro m Financing Investments Capex CF fro m Invest ment Net Cash Flow s Cash at the beginning of the year Cash at the end of the year
Revenue growth Gross Profit margin Net Profit margin growth
2016E 19,394 8,754 6,390 4,942 4,939 1,342
2017E 20,460 9,286 6,820 5,275 5,272 1,432
19,925 14.9 22,000 16.4
7.0% 45.4% 26.4% 5.2% 18.2% 21.3% 6,733 501 35.0%
-7.6% 44.9% 25.2% -11.8% 15.2% 17.0% 7,421 442 35.0%
5.0% 45.1% 25.5% 6.2% 14.4% 16.1% 8,324 470 35.0%
5.5% 45.4% 25.8% 6.7% 13.8% 15.4% 9,288 501 35.0%
5,271 759 (219) 5,811 (3,313) (151) (35) (3,499) (53) (3,597) (3,651) (1,339) 12,595 11,256
4,650 901 (822) 4,729 (1,845) (270) 8 (2,107) 6 (3,854) (3,848) (1,226) 11,256 10,030
4,939 924 (187) 5,676 (1,627) 9 5 (1,613) (3) (3,662) (3,665) 398 10,030 10,428
5,272 947 (202) 6,016 (1,729) 9 6 (1,714) (3) (3,479) (3,482) 821 10,428 11,250
9M 2014 9M2015 14,167 12,886 -9.0% 6,362 5,752 44.9% 44.6% 3,729 3,218 26.3% 25.0% -13.7%
Balance Sheet (Rp bn) Cash & cash equivalents Trade receivables Inventories-net Advances and deposits Prepaid taxes Prepaid expenses Other Current Financial Assets TOTAL CURRENT ASSETS Deferred tax assets-net Long term investments Fixed asset-net Intangible Assets Other NC Financial Assets Other non-current assets TOTAL NC ASSETS TOTAL ASSETS Trade payable Other payables Customer's deposit's Accrued expenses Taxes payable ST employee benefit liab Current mat of finance lease TOTAL CURRENT LIABILITIES Finance lease Deferred tax liabilities-net LT Employee Benefit Liab LT Provision TOTAL NC LIABILITIES TOTAL LIABILITIES Capital stock Additional paid-in capital Other comprehensive income Retained earnings Appropriated Unappropriated SUB TOTAL EQUITY TOTAL EQUITY
2014 11,256 2,671 1,666 314 8 42 130 16,087 30 109 12,144 15 75 422 12,798 28,885 1,175 520 67 1,056 271 123 49 3,261 76 387 309 68 840 4,100 1,841 2,699 85 20,160 350 19,810 24,785 24,785
2015E 10,030 2,828 1,723 315 12 116 64 15,088 34 102 15,097 16 19 163 15,435 30,524 773 503 22 469 204 92 64 2,127 69 356 584 67 1,076 3,204 1,841 2,699 (184) 22,965 375 22,590 27,320 27,320
2016E 10,428 3,040 1,981 323 13 119 74 15,978 60 104 17,835 16 22 188 18,229 34,207 869 566 33 586 230 101 73 2,457 66 338 640 65 1,109 3,566 1,841 2,699 (175) 26,276 400 25,876 30,641 30,641
2017E 11,250 3,268 2,278 331 13 122 85 17,347 105 107 20,367 16 25 216 20,841 38,187 978 637 50 732 259 110 82 2,847 63 321 701 62 1,147 3,995 1,841 2,699 (166) 29,819 425 29,394 34,193 34,193
Source: Financial report, Reliance research
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