(INTP IJ) 1Q18 review: Below expectations Cement Company Report May 8, 2018 (Maintain) Hold Target Price (12M, IDR) 15,600 Share Price (5/7/18, IDR) 17,000 Expected Return -8.2% Consensus OP (18F, IDRtr) 2.4 EPS Growth (18F, %) -37.7 P/E (18F, x) 54.0 Industry P/E (18F, x) 18.6 Benchmark P/E (18F, x) 15.0 Market Cap (IDRbn) 62,580.9 Shares Outstanding (mn) 3,681.2 Free Float (mn) 1,803.8 Institutional Ownership (%) 17.5 Beta (Adjusted, 24M) 1.3 52-Week Low (IDR) 15,550 52-Week High (IDR) 23,950 (%) 1M 6M 12M Absolute -9.8-27.0 3.7 Relative -4.0-24.5 0.1 (D-1yr=100) JCI INTP 150 130 110 1Q18 review: Disappointing performance Tbk (INTP IJ) reported 1Q18 revenue of IDR3.4tr (+1.9% YoY, -12.2% QoQ), achieving 21.7% of our full-year forecast and 22.0% of the full-year consensus. While 1Q18 revenue only slightly missed our estimate, net profit fell far short of expectations at only IDR264.3bn (-46.2% YoY, -41.7% QoQ), achieving just 11.5% of full-year estimates (ours and consensus). We attribute the disappointing performance to more-severe-than-expected gross margin contraction; 1Q18 gross margin was just 28.7% (vs. 35.3% in 4Q17 and 34.5% in 1Q17) due to an increase in fuel and power costs (+17.9% YoY, -0.5% QoQ; 46.3% contribution to 1Q18 COGS), which was mostly driven by higher coal prices in the quarter (see Figure 3). Thus, gross profit stood at IDR986.8bn (- 15.2% YoY, -28.7% QoQ). The gross margin deterioration negatively affected profitability, with OP margin falling to only 6.6% (vs. 14.8% in 1Q17 and 12.1% in 4Q17) and net margin dropping to 7.7% (vs. 14.6% in 1Q17 and 11.6% in 4Q17). Better sales volume growth this year, despite still-weak ASP In 1Q18, INTP s cement business revenue inched up 0.7% YoY but declined 12.7% on a QoQ basis, which is normal considering the seasonally strong fourth quarter. Despite lower average selling prices (ASP) in 1Q18 (both YoY and QoQ), sales volume turned around during the quarter. Cumulatively in 3M18, INTP s cement sales volume (domestic+exports) reached 4.1mn tonnes (+9.5% YoY, -11.8% QoQ), with YoY volume growth outpacing industry growth (+7.7% YoY, -17.8% QoQ). This was largely thanks to better growth in the west part of Java, especially West Java and Jakarta. INTP s YTD market share has improved to 26.4% (from 25.6% a year earlier). Revising down our net profit forecast due to lower margin estimate In light of the lower-than-expected 1Q18 revenue, we revise down our 2018F-19F revenue forecasts by 4.8% and 4.8%, respectively. We also lower our margin assumptions due to the margin contraction seen in 1Q18. As a result, we cut our 2018F-19F net profit forecasts by 49.6% and 40.7%, respectively. Maintain Hold recommendation, and lower TP to IDR15,600 We believe the clouds hanging over the cement industry have yet to clear completely. Persistent oversupply and rising energy prices still weigh on the industry s performance. However, we are encouraged by INTP s better volume growth this year on the back of better cement consumption in the west part of Java. We maintain our Hold recommendation on INTP, and cut our target price to IDR15,600/share (previously: IDR16,745/share). Upside risks include a better-than-expected ASP recovery, strongerthan-expected property market recovery, cement industry consolidation, and weakerthan-expected coal prices. Downside risks are lower-than-expected volume and margins due to higher-than-expected costs and/or worse-than-expected oversupply. 90 5/17 7/17 9/17 11/17 1/18 3/18 PT. Basic Industry Mimi Halimin +62-21-515-1140 (ext.: 233) mimi.halimin@miraeasset.co.id FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F Revenue (IDRbn) 17,798 15,362 14,431 15,119 16,569 Operating profit (IDRbn) 5,029 3,618 1,928 1,190 1,830 Net Profit (IDRbn) 4,357 3,870 1,860 1,160 1,671 EPS (IDR) 1,183 1,051 505 315 454 BPS (IDR) 6,483 7,101 6,671 6,809 7,153 P/E (x) 14.4 16.2 33.6 54.0 37.4 P/B (x) 2.6 2.4 2.5 2.5 2.4 EV/EBITDA (x) 9.1 11.6 18.6 23.6 17.5 ROE (%) 18.3% 14.8% 7.6% 4.6% 6.3% ROA (%) 15.8% 12.8% 6.4% 4.0% 5.4% Dividend Yield (%) 2.4% 5.5% 1.0% 0.6% 0.9% Net gearing (x) net cash net cash net cash net cash net cash Note: Net profit refers to net profit attributable to controlling interests Source: Company data, Research PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Table 1. INTP s 1Q18 earnings results (IDRbn) 1Q17 4Q17 1Q18 YoY(%) QoQ (%) Revenue 3,376 3,919 3,440 1.9% -12.2% COGS 2,212 2,535 2,453 10.9% -3.3% Gross profit 1,164 1,383 987-15.2% -28.7% Operating profit 499 474 229-54.1% -51.7% Pre-tax profit 623 499 325-47.7% -34.8% Net profit 492 453 264-46.2% -41.7% Gross margin (%) 34.5% 35.3% 28.7% Op. margin (%) 14.8% 12.1% 6.6% Net margin (%) 14.6% 11.6% 7.7% Note: NP refers to net profit attributable to controlling interests Source: Company data, Research Table 2. INTP s 1Q18 performance vs. target (before revision) FY18 (F) FY18 (F) 1Q18 (A) 1Q18 (A) to FY18F (%) FY (Dec.) Mirae Consensus Actual Mirae Consensus Revenue (IDRbn) 15,875 15,656 3,440 21.7% 22.0% Pre-tax profit (IDRbn) 2,988 2,945 325 10.9% 11.1% NP (IDRbn) 2,301 2,306 264 11.5% 11.5% Note: NP refers to net profit attributable to controlling interests Source: Company data, Bloomberg, Research estimates Table 3. Earnings forecast revisions FY (Dec.) 12/18 (Old) 12/18 (New) % change 12/19 (Old) 12/19 (New) % change Revenue (IDRbn) 15,875 15,119-4.8% 17,400 16,569-4.8% Gross profit (IDRbn) 5,590 4,406-21.2% 6,363 5,214-18.1% NP (IDRbn) 2,301 1,160-49.6% 2,820 1,671-40.7% Note: NP refers to net profit attributable to controlling interests Source: Company data, Research estimates Figure 1. INTP s historical 1Q revenue and growth Figure 2. INTP s historical 1Q profit margin (IDRbn) (YoY, %) 5,000 Revenue YoY growth 20.0% 60.0% gross margin operating margin net margin 4,000 10.0% 45.0% 3,000 0.0% 30.0% 2,000 1,000-10.0% 15.0% 0 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18-20.0% 0.0% 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 Source: Company data, Research Source: Company data, Research 2
Figure 3. Coal prices as of the end of April 2018 Figure 4. INTP s domestic cement sales volume (USD/MT) 120 1Q17 2Q17 3Q17 4Q17 1Q18 (mn tonnes) 4.2 4.15 100 4.0 3.88 3.94 80 3.8 3.78 60 3.6 40 01/15 08/15 03/16 10/16 05/17 12/17 3.4 3M15 3M16 3M17 3M18 Source: Bloomberg, Research Source: Company data, ASI, Research 3
(INTP/Hold/TP IDR15,600) Income Statement (Summarized) Statement of Financial Condition (Summarized) (IDRbn) 12/16 12/17 12/18F 12/19F (IDRbn) 12/16 12/17 12/18F 12/19F Revenue 15,362 14,431 15,119 16,569 Cash 9,674 8,295 8,842 9,995 Cost of Goods Sold 9,030 9,423 10,713 11,355 Trade Receivables 2,605 2,485 2,692 2,951 Gross Profit 6,331 5,008 4,406 5,214 Inventories 1,780 1,769 2,054 2,178 Operating Expenses -2,714-3,080-3,216-3,384 Other CA 365 335 285 312 Operating Profit 3,618 1,928 1,190 1,830 PPE 14,644 14,979 15,233 15,199 Pretax Profit 4,146 2,287 1,506 2,171 Other Non-CA 1,082 1,001 181 198 Income Tax -275-427 -346-499 Total Assets 30,151 28,864 29,288 30,833 Non-Controlling Interest 0 0 0 0 Trade Payables 1,519 1,549 1,790 1,898 Net Profit 3,870 1,860 1,160 1,671 ST loans + CPLTD 70 88 51 56 Total CL 3,188 3,479 3,456 3,664 Profitability ratio Long-term debt 37 20 20 20 Gross Profit Margin 41.2% 34.7% 29.1% 31.5% Total Liabilities 4,012 4,307 4,222 4,502 Operating Profit Margin 23.5% 13.4% 7.9% 11.0% Common Stock 1,841 1,841 1,841 1,841 Net Profit Margin 25.2% 12.9% 7.7% 10.1% Paid in Capital 2,699 2,699 2,699 2,699 Return on Equity 14.8% 7.6% 4.6% 6.3% Retained Earnings 21,883 20,323 20,832 22,098 Return on Asset 12.8% 6.4% 4.0% 5.4% Non-Controlling interest 0 0 0 0 Equity (ex minority) 26,139 24,557 25,065 26,331 Cash Flow (Summarized) Forecasts/ Valuations (Summarized) (IDRbn) 12/16 12/17 12/18F 12/19F 12/16 12/17 12/18F 12/19F Operating Cash Flow P/E (x) 16.2 33.6 54.0 37.4 Net income 3,870 1,860 1,160 1,671 P/B (x) 2.4 2.5 2.5 2.4 Depreciation 927 1,054 1,141 1,234 EV/EBITDA (x) 11.6 18.6 23.6 17.5 Changes in operating accounts EPS (IDR) 1,051 505 315 454 in trade receivables 71-121 208 258 BPS (IDR) 7,101 6,671 6,809 7,153 in inventories 172-12 286 123 DPS (IDR) 929 177 110 159 in others CA 30-30 -50 27 Payout ratio (%) 88% 35% 35% 35% in trade payable 416 30 241 107 Dividend Yield (%) 5.5% 1.0% 0.6% 0.9% in accrued expense 96 96 26 27 Revenue growth (%) -13.7% -6.1% 4.8% 9.6% in others CL -21 147-253 69 GP growth (%) -19.9% -20.9% -12.0% 18.3% CFO 5,025 3,367 1,835 2,705 OP growth (%) -28.1% -46.7% -38.3% 53.7% EBITDA growth (%) -22.7% -35.9% -22.3% 31.9% Investing Cash Flow NP growth (%) -11.2% -51.9% -37.7% 44.1% in PPE 1,757 1,390 1,394 1,200 AR turnover (x) 6 6 6 6 Others 392-81 -820 17 Invt. turnover (x) 5 5 5 5 CFI -2,149-1,309-574 -1,217 AP turnover (x) 7 6 6 6 Financing Cash Flow ROA (%) 12.8% 6.4% 4.0% 5.4% in other liability -261 4-62 72 ROE (%) 14.8% 7.6% 4.6% 6.3% in equity 1,598 3,442 651 406 Gearing in minority interest 0 0 0 0 Total debt (IDRbn) 107 108 71 76 CFF -1,858-3,438-713 -334 Debt/equity (%) 0.4% 0.4% 0.3% 0.3% Net cash 1,018-1,379 548 1,153 Net cash (IDRbn) 9,567 8,187 8,771 9,919 beginning balance 8,656 9,674 8,295 8,842 Net debt/equity (%) net cash net cash net cash net cash ending balance 9,674 8,295 8,842 9,995 Source: Company, Research estimates 4
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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% * 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, 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. 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