2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 (INTP IJ) Waiting for sentiment to improve Better QoQ volume growth in 4Q16, but weak FY16 performance overall Basic Industry Company Report February 8, 2017 (Maintain) Target Price (12M, IDR) Hold 14,600 Share Price (2/7/17, IDR) 15,400 Expected Return -5.2% Consensus OP (17F, IDRtr) 4.4 EPS Growth (17F, %) -18.3 P/E (17F, x) 16.9 Industry P/E (17F, x) 17.0 Benchmark P/E (17F, x) 15.0 Market Cap (IDRbn) 56,691.0 Shares Outstanding (mn) 3,681.2 Free Float (mn) 1,324.0 Institutional Ownership (%) 27.7 Beta (Adjusted, 24M) 1.5 52-Week Low (IDR) 14,275 52-Week High (IDR) 20,850 (%) 1M 6M 12M Absolute -3.1-15.6-22.0 Relative -3.8-14.9-34.2 (D-1yr=100) JCI INTP 130 110 90 70 50 In December 2016, domestic cement sales volume for Indocement Tunggal Prakarsa Tbk (INTP IJ) came in at 1.4mn tonnes (+0.1% YoY; -4.9% MoM; see Figure 2). We attribute the weak figure to the rainy season and disruptions to distribution caused by a partial ban on truck operation during the year-end holiday season. Of note, the regulation was rolled out by the government on short notice. Factoring in December domestic sales volume, total sales volume (including domestic and exports) for 4Q16 totaled 4.5mn tonnes (+11.6% QoQ; -8.7% YoY). In light of this, we estimate that INTP s revenue improved QoQ but fell YoY. Unfortunately, INTP s QoQ pickup in sales volume growth in 4Q16 was not sufficient to offset the weakness in the rest of FY16. For the full year, INTP s domestic sales volume totaled only 16.1mn tonnes (-4.0% YoY; see Figure 3). Meanwhile, amid weak domestic cement demand, the company boosted its FY16 export sales volume by around 77% YoY, from only 175,693 tonnes in 2015 to 311,364 tonnes in 2016. All in all, given that INTP s FY16 cement sales volume missed our projection, we lower our FY16 revenue estimate. We estimate that INTP will deliver 4Q16 revenue of around IDR4.2tr and FY16 revenue of around IDR15.5tr (-12.8% YoY from the FY15 result). Fierce competition and weak consumption growth Market share losses Due to an increase in the number of cement players, INTP suffered market share losses of almost 2%p in FY16. We ascribe this contraction to the concentration of new entrants in the West Java area, INTP s home market area. This is unsurprising, given that Java is still the biggest domestic cement consumer, accounting for around 55% of total domestic demand in FY16. Furthermore, West Java s strategic location, near Jakarta and Banten, is also attractive to cement producers. Unfortunately, due to the slowdown in the local property market, Java recorded stagnant YoY cement consumption growth in 2016. Even worse, West Java, Banten, and Jakarta experienced negative YoY growth. In short, ongoing fierce competition and prolonged stagnant cement consumption growth in West Java are likely to exert pressure on INTP going forward. New brand Semen Rajawali to compete in the second-tier market In October 2016, INTP launched a new brand under the name Semen Rajawali. Mainly targeting the project segment, the brand is being marketed to compete with second-tiers. However, INTP s focus will still be on the flagship Tiga Roda brand given its strong brand image, especially in West Java. PT. FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F Mimi Halimin +62-21-515-1140 mimi.halimin@miraeasset.co.id Revenue (IDRbn) 18,691 19,996 17,798 15,511 16,268 Gross profit (IDRbn) 8,655 9,106 7,909 6,515 6,816 Operating profit (IDRbn) 5,975 5,880 5,029 3,862 3,969 NP (IDRbn) 5,010 5,291 4,357 4,105 3,355 EPS (IDR) 1,361 1,437 1,184 1,115 911 BPS (IDR) 6,174 6,676 6,483 7,184 7,705 P/E (x) 11.3 10.7 13.0 13.8 16.9 ROE (%) 22.0% 21.5% 18.3% 15.5% 11.8% ROA (%) 18.8% 18.3% 15.8% 13.8% 10.5% Note: NP refers to net profit attributable to controlling interests Source: Company data, Research estimates Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
New plant to boost capacity INTP s new plant (P14), for which construction started in 2013, commenced production in 4Q16. This new plant is projected to raise INTP s installed design capacity from 20.5mn tonnes to 24.9mn tonnes. Inaugurated in October 2016, the plant has become a part of INTP s integrated plant in Citeureup, Bogor, West Java. Of note, INTP had already been operating nine plants in the Citeureup area prior to the integration of P14. We expect P14 to be fully operational in 2017, supplying the market with 4.4mn tonnes/year in additional output. FY16 revenue estimate revised down Factoring in INTP s weak volume in FY16, we revise down our revenue estimate for the full year (see Table 1). In addition to lowering our volume assumption, we also trim our average selling price (ASP) projection amid unresolved oversupply and weak cement consumption. However, we raise our net profit estimate due to a deferred tax benefit from asset revaluation. Maintain Hold recommendation and lower TP to IDR14,600 We roll forward our valuation basis to 2017. We maintain our Hold recommendation on INTP but lower our target price from IDR16,200 to IDR14,600. Our concerns on INTP are as follows: a) weak FY16 cement sales volume; b) tight competition and weak cement consumption growth in West Java; and c) the current oversupply situation, which is likely to continue to haunt cement companies performance this year, in our view. Risks to our call are a stronger-than-expected property market recovery and government intervention supportive to the property and cement industries. 2
Figure 1. Indonesian cement industry 2016 landscape Source: Company data, Mirae Asset Sekuritas Research Indonesia Figure 2. INTP s domestic cement sales volume Figure 3. INTP s cumulative domestic cement sales volume (mn tonnes) 1.8 1.6 1.5 1.4 1.2 1.3 1.2 1.2 1.0 0.8 1.4 1.3 0.9 1.6 Dec 16: +0.1% YoY; -4.9% MoM 1.4 1.5 1.5 1.4 (mn tonnes) 17.00 16.80 16.60 16.40 16.78-4.0% 0.6 16.20 16.12 0.4 0.2 16.00 0.0 15.80 15.60 12M15 12M16 Source: ASI, Mirae Asset Sekuritas Research Indonesia Source: ASI, Mirae Asset Sekuritas Research Indonesia Table 1. Earnings forecast revisions FY (Dec.) 12/16 (Old) 12/16 (New) 12/17 (Old) 12/17 (New) 12/18 (Old) 12/18 (New) Revenue (IDRbn) 16,858 15,511 17,939 16,268 19,528 17,960 Gross profit (IDRbn) 7,384 6,515 7,893 6,816 8,788 7,633 OP, SG&A (IDRbn) 4,434 3,862 4,754 3,969 5,468 4,580 NP (IDRbn) 4,064 4,105 3,982 3,355 4,554 3,852 Note: NP refers to net profit attributable to controlling interests Source: Company data, Research estimates 3
Income Statement (Summarized) Statement of Financial Condition (Summarized) (IDRbn) 12/15 12/16F 12/17F 12/18F (IDRbn) 12/15 12/16F 12/17F 12/18F Revenue 17,798 15,511 16,268 17,960 Cash 8,656 10,899 12,377 12,966 Cost of Goods Sold 9,889 8,997 9,452 10,327 Trade Receivables 2,535 2,268 2,379 2,626 Gross Profit 7,909 6,515 6,816 7,633 Inventories 1,521 1,479 1,528 1,669 Operating Expenses -2,880-2,652-2,847-3,053 Other CA 422 368 386 426 Operating Profit 5,029 3,862 3,969 4,580 PPE 13,814 14,118 14,953 16,881 other income/(loss) 588 503 479 528 Other Non-CA 691 620 195 215 Pretax Profit 5,645 4,389 4,473 5,136 Total Assets 27,638 29,753 31,818 34,783 Income Tax 1,288 284 1,118 1,284 Trade Payables 1,103 992 1,042 1,139 Non-Controlling Interest 0 0 0 0 ST debt 60 52 55 61 Net Profit 4,357 4,105 3,355 3,852 Total current liabilities 2,688 2,480 2,590 2,794 LT debt 61 61 61 61 Profitability ratio Total Liabilities 3,772 3,307 3,454 3,741 Gross Profit Margin 44.4% 42.0% 41.9% 42.5% Common Stock 1,841 1,841 1,841 1,841 Operating Profit Margin 28.3% 24.9% 24.4% 25.5% Paid in Capital 2,699 2,699 2,699 2,699 Net Profit Margin 24.5% 26.5% 20.6% 21.4% Retained Earnings 19,541 22,121 24,039 26,717 Return on Equity 18.3% 15.5% 11.8% 12.4% Non-Controlling Interest 0 0 0 0 Return on Asset 15.8% 13.8% 10.5% 11.1% Equity (ex minority) 23,866 26,446 28,364 31,042 Cash Flow (Summarized) (IDRbn) 12/15 12/16F 12/17F 12/18F Operating Cash Flow Net income 4,357 4,105 3,355 3,852 Depreciation and amortization 858 901 965 1,073 in trade receivables -136-266 111 247 in inventories -144-42 49 141 in others CA -72-54 18 40 in trade payable -72-111 50 96 in accrued expense -378 20 21 22 in others CL -134-109 36 80 Net cash operating activities 4,995 5,161 4,252 4,700 Investing Cash Flow in PPE 2,528 1,205 1,800 3,000 Net cash investing activities -2,565-1,135-1,375-3,020 Financing Cash Flow in other liability 38-258 37 83 in equity 5,068 1,525 1,437 1,174 Net cash financing activities -5,031-1,783-1,399-1,091 Net cash -2,601 2,244 1,478 589 beginning balance 11,256 8,656 10,899 12,377 ending balance 8,656 10,899 12,377 12,966 Source: Company, Research estimates 4
APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Sekuritas, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Indonesian jurisdiction and are subject to Indonesian securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT except as otherwise stated herein. Disclaimers This report is published by PT ( Mirae ), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesia Exchange. 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