Indocement Tunggal Prakarsa(INTP IJ)

Transcription

1 Equity Research Company Update Thursday,26 October 2017 SELL Maintain Last price (IDR) 21,850 Target Price (IDR) 15,700 Upside/Downside -28.1% Previous Target Price (IDR) 13,400 Stock Statistics Sector Bloomberg Ticker Cement INTP No of Shrs (mn) 3,681 Mkt. Cap (IDR bn/usdmn) 71,416/5,277 Avg. daily T/O (IDR bn/usdmn) 34.6/2.6 Major shareholders Birchwood Omnia Limited 51.0% Mekar Perkasa 13.0% Estimated free float (%) 39.4 EPS Consensus(IDR) 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons (18.6) (27.4) (25.1) INTP relative to JCI Index Indocement Tunggal Prakarsa(INTP IJ) Not justified exuberance We reiterate our SELL call on INTP with a higher target price of IDR15,700 as we: (i) roll over our valuation to 2018, and (ii) lower our risk-free rate assumption from 7.8% to 7%. Nonetheless, the stock s current lofty market valuation of 36.1x 2018 P/E cannot be justified in our opinion. Especially given that weak 9M17 results are on the cards (we forecast net profits of just IDR1.5tn, 52.6% lower yoy, or far below the consensus net profit target of IDR2.7tn), we believe that downside remains. The current share price cannot be justified. We don t believe the recent surge in the share price is justified. With the current share price of IDR21,850, INTP is trading at 36.1x 2018F P/E, or higher than historical +3SD forward trailing PE. Based on our sensitivity analysis, to arrive at the current share price, we should use: ASP growth of 5.0%/pa starting from 2018 to 2021, while maintaining our sales volume growth of 3-6%, Sales volume growth of 25-29% in the next 3 years, while maintaining our ASP growth of 0-3.5% in the next three years, Coal price assumption of USD1/ton starting from 2018 to 2021, while maintaining our sales volume growth of 3-6% and ASP growth of 0-3.5% in the next three years. We believe each of these assumptions is unrealistic. Thus, we don t think the recent increase in the share price is justified. Earnings preview: stellar qoq performance from seasonality. We expect INTP to record net profits of IDR591bn in 3Q17, up 44.0%qoq. This will be supported by 29.9%qoq higher estimated sales volume. Recall that Lebaran fell in 2Q17, resulting in 10 fewer working days. Profitability wise, we expect slight compression in the gross margin considering that pricing pressure remains. Based on the company s guidance, its ASP were still down by 2%qoq in 3Q17. As such, on a cumulative basis, we expect INTP to record net profits of IDR1.5tn in 9M17, down by 52.6%yoy. This figure is 70.0% of our full year net profit target of IDR2.1tn (INLINE) and 56.8% of the consensus estimates of IDR2.7tn. Reiterate our SELL call on INTP. We reiterate our SELL call on INTP with a higher target price of IDR15,700 as we: (i) roll over our valuation to 2018, (ii) lower our risk free rate assumption from 7.8% to 7.0% to take into account the declining trend in government bond yields from 8.0% in early 2017 to 6.9% currently. To arrive at our target price, we use DCF based valuation with WACC of 13.0% and Terminal Growth of 4.0%. Our target price implies 25.9x 2018 P/E, slightly above its +1SD PE of 23.6x. Nonetheless, the stock s current lofty market valuation of 36.1x 2018 P/E cannot be justified in our opinion. Source : Bloomberg Antonia Febe Hartono, CFA (62-21) ext.3504 antonia.hartono@danareksa.com Stefanus Darmagiri (62-21) stefanus.darmagiri@danareksa.com Key Financials Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue, (IDRbn) 17,798 15,362 14,536 15,090 16,359 EBITDA, (IDRbn) 5,966 4,611 3,446 3,663 4,300 EBITDA Growth, (%) (11.4) (22.7) (25.3) Net profit (IDRbn) 4,357 3,870 2,131 2,229 2,631 EPS (IDR) 1, , EPS growth (%) (17.3) (11.2) (44.9) BVPS, (IDR) 6, , , , ,744.2 DPS, (IDR) 1, PER (x) PBV (x) Dividend yield (%) EV/EBITDA (x) Source : INTP, Danareksa Estimates See important disclosure at the back of this report 1

2 Exhibit 1. REVENUES AND GROWTH Exhibit 2. NET PROFITS AND GROWTH Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL Exhibit 5. INTP s PE band (x ) Average: -1sd 2sd 1sd sd 6.0 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Source: Bloomberg, Danareksa Sekuritas estimates Exhibit 6. Cement sector s PE Band (x ) sd sd Average: sd sd 6.0 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Source: Bloomberg, Danareksa Sekuritas estimates Impact from higher coal prices to be fully felt in 4Q17. To secure its coal supply, INTP has annual coal volume contracts with several big coal suppliers. However, for the reference price, the previous month s HBA is used. Thus, the recent increase in the coal price (from USD84.0/ton in August 2017 to USD94.0/ton in October 2017) will be fully reflected in 4Q17. With expected additional 1-2%qoq compression in selling prices, we forecast a lower gross profit margin for INTP of 33.6% in 4Q17, only down by 2bps compared to our 3Q17 gross margin estimate on the back of normalizing salary expenses. See important disclosure at the back of this report 2

3 Exhibit 7. Coal prices USD/ton New Castle Coal Price HBA % -16.8% 13.4% 30.5% 40 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Source: Bloomberg, Ministry of Energy Selective price cuts. After speaking to several cement distributors, we note that INTP plans to cut cement prices by an additional IDR1,500/sack in October or early November 2017 in several areas in a bid to maintain its market share. Nonetheless, INTP claims that this aggressive pricing strategy will only be applied selectively in several areas as it does not aim to put further pressure on overall industry prices considering that new players have kept prices flat over the last 3 months. To take this selective strategy into account, we only expect additional 1-2%qoq declines in pricing in 4Q17. Thus, on a cumulative basis, we expect INTP s ASP to decline by 7.7%yoy. Exhibit 8. Sensitivity of Net profits 2018 to ASP assumption -5% -2.5% Base case +2.5% +5% 752, , , , ,798 Revenue (Rp bn) 14,394 14,742 15,090 15,439 15,787 EBITDA (Rp bn) 2,968 3,315 3,663 4,010 4,357 Net income (Rp bn) 1,708 1,968 2,229 2,489 2,750 EPS (Rp) Impact to EPS -23.4% -11.7% 11.7% 23.4% Source: Danareksa Sekuritas Exhibit 9. Sensitivity of 2018 Net profits to Sales volume -5% -2.5% Base case +2.5% +5% Utilization rate (%) 73.7% 75.7% 77.6% 79.6% 81.5% Revenue (Rp bn) 14,394 14,742 15,090 15,439 15,787 EBITDA (Rp bn) 3,452 3,557 3,663 3,768 3,873 Net income (Rp bn) 2,071 2,150 2,229 2,308 2,387 EPS (Rp) Source: Danareksa Sekuritas Exhibit 10. Sensitivity of 2018 Net profits to the Coal price -5% -2.5% Base case +2.5% +5% Utilization rate (%) 73.7% 75.7% 77.6% 79.6% 81.5% Revenue (Rp bn) 14,394 14,742 15,090 15,439 15,787 EBITDA (Rp bn) 3,452 3,557 3,663 3,768 3,873 Net income (Rp bn) 2,071 2,150 2,229 2,308 2,387 EPS (Rp) Source: Danareksa Sekuritas See important disclosure at the back of this report 3

4 Exhibit 11. Earnings preview 9M16 6M17 9M17F yoy 2017F A/F Revenue (Rp bn) 11,347 6,544 10,500 (7.5) 14, Gross profit (Rp bn) 4,727 2,241 3,578 (24.3) 4, Operating profit (Rp bn) 2, ,538 (44.8) 2, EBITDA (Rp bn) 3,516 1,424 2,283 (35.1) 3, Pretax income (Rp bn) 3,179 1,137 1,923 (39.5) 2, Net Income (Rp bn) 3, ,492 (52.6) 2, Margin Gross profit margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) Source: INTP, Danareksa Sekuritas Exhibit 12. Forecast changes Previous New Changes (%) ASP (Rp/ton) 842, , , , , Sales volume (mn ton) (0.5) (0.5) Coal price (USD/ton) Electricity cost (Rp/kWh) Revenue 15,362 14,693 15,248 14,536 15,090 (1.1) (1.0) EBITDA 4,611 3,956 4,001 3,446 3,663 (12.9) (8.5) Net profit 3,870 2,514 2,484 2,131 2,229 (15.2) (10.3) Source: INTP, Danareksa Sekuritas See important disclosure at the back of this report 4

5 Exhibit 13. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Revenue 17,798 15,362 14,536 15,090 16,359 COGS (9,889) (9,030) (9,601) (9,901) (10,455) Gross profit 7,909 6,331 4,935 5,190 5,904 EBITDA 5,966 4,611 3,446 3,663 4,300 Oper. profit 5,029 3,618 2,294 2,448 3,037 Interest income Interest expense (27) (12) Forex Gain/(Loss) Income From Assoc. Co s Other Income (Expenses) Pre-tax profit 5,645 4,146 2,841 2,972 3,508 Income tax (1,288) (276) (710) (743) (877) Minority interest Net profit 4,357 3,870 2,131 2,229 2,631 Core Net Profit 4,357 3,870 2,131 2,229 2,631 Exhibit 14. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent 8,656 9,674 9,574 8,513 7,577 Receivables 2,535 2,605 2,625 2,704 2,909 Inventory 1,521 1,780 1,857 1,903 2,002 Other Curr. Asset Fixed assets - Net 13,814 14,644 15,144 16,889 18,541 Other non-curr.asset 691 1,082 1,082 1,082 1,082 Total asset 27,638 30,151 30,691 31,514 32,562 ST Debt Payables 1,622 2,089 1,921 1,981 2,092 Other Curr. Liabilities 1,066 1,099 1,107 1,123 1,172 Long Term Debt Other LT. Liabilities 1, Total Liabilities 3,772 4,012 3,830 3,897 4,054 Shareholder'sFunds 23,866 26,139 26,861 27,617 28,508 Minority interests Total Equity & Liabilities 27,638 30,151 30,691 31,514 32,562 See important disclosure at the back of this report 5

6 Exhibit 15.Cash Flow Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Net income 4,357 3,870 2,131 2,229 2,631 Depreciation and Amort ,153 1,215 1,264 Change in Working Capital (231) 218 (252) (48) (167) OtherOper. Cash Flow (563) (485) (503) (479) (426) Operating Cash Flow 4,414 4,526 2,528 2,917 3,302 Capex (2,516) (1,758) (1,653) (2,960) (2,915) Others Inv. Cash Flow Investing Cash Flow (1,969) (1,647) (1,150) (2,482) (2,490) Net change in debt (4) (14) (70) (22) (9) New Capital Dividend payment 4,968 1,527 1,409 1,473 1,739 Other Fin. Cash Flow (74) (319) Financing Cash Flow 4,890 1,194 1,339 1,451 1,730 Net Change in Cash 7,335 4,073 2,717 1,886 2,542 Cash - begin of the year 11,256 8,656 9,674 9,574 8,513 Cash - end of the year 8,656 9,674 9,574 8,513 7,577 Exhibit 16. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales (11.0) (13.7) (5.4) EBITDA (11.4) (22.7) (25.3) Operating profit (14.1) (28.1) (36.6) Net profit (17.3) (11.2) (44.9) Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) (0.4) (0.4) (0.4) (0.3) (0.3) Interest Coverage (x) Source : INTP, Danareksa Estimates See important disclosure at the back of this report 6