Equity Indonesia Cement Indocement (INTP IJ) BUY (Unchanged) StockData Target price (Rp) Rp22,500 Prior TP (Rp) 20,600 Shareprice (Rp) Rp19,375 Upside/downside (%) +16.1 Sharesoutstanding (m) 3,681 Marketcap. (US$ m) 5,301 Free float (%) 36.0 Avg. 6m dailyt/o (US$ m) 3.6 Price Performance 3M 6M 12M Absolute (%) -7.7 0.4-19.4 Relative to JCI (%) -9.9-5.3-5.6 52whigh/low (Rp) 19,375-16,300 105 100 95 90 85 80 75 70 65 60 Feb-15 Mar-15 Apr-15 Apr-15 May-15 Jun-15 Jun-15 INTP-Rebase Major Shareholders Birchwood Omnia Ltd. 51.0% Mekar Perkasa 13.0% Estimate Change; Vs. Consensus 2015F 2016F Latest EPS (Rp) 1,168 1,210 Vs. Prior EPS (%) - 3.3 Vs. Consensus (%) (24.7) (32.5) Source: Bloomberg Jul-15 Aug-15 Aug-15 Sep-15 Oct-15 Nov-15 Nov-15 Dec-15 Jan-16 JCI Index-Rebase Jan-16 Feb-16 Improving cost mix New plant P14 contributes better efficiency Falling commodity prices reduce energy cost No major capex this year Maintain Buy, with new target price Rp22,500 23 February 2016 Company Update P14 fired up. Indocement will start to fire up its new plant P14 to produce clinker in 1Q16 and full integrated cement operation in 2Q16. Using the state of the art technology, this plant operates with lower cost of US$8-10 per ton or 10-14% of total production cost. Capacity contribution is about 17% to the total production capacity of 25mn tons p.a. The new plant will be a priority to operate with older plants to put on standby depending on demand growth. The management is looking at 5% volume growth, which is reasonable, in our view. Balancing margins and market share of around 30% remains the guide rule of the company. Falling commodity prices might help. Fuel and power account about 42-43% of total cost of manufacturing. Current Indonesian coal benchmark price is US$50.9 per ton in Feb16, lower by 15.3% against last year s average. Power tariff from PLN is Rp959 per kwh, also lower by 8% compared to last s year average. Indocement indicated that ASP tends to hold in the beginning of the year. Despite infrastructure projects helping to boost demand, these projects have shorter life-time compared to property. We believe that lower interest rate will help grow momentum for the property sector. Weaker commodity prices will help Indocement maintain its profit margin even with the absence of price increase. Capex only for maintenance. Indocement has not scheduled major capex for this year since P14 is practically completed. Capex is budgeted at Rp2.1-2.5tn allocated for routine maintenance and a small amount for completion of P14. With expected EBITDA of Rp6.5tn and with practically no debt, the company has a very healthy cash flow allowing the company to distribute dividend. 2015 dividend payment was Rp1,350 per share translating to a hefty yield of 6.9%. We expect the management to be conservative in dividend distribution due to high competitive environment due to the oversupply. Buy with graded target price to Rp22,500. We have slightly upgraded our EBITDA and net profit FY16 estimates by 3.0% and 3.3%, respectively, related to higher efficiency contribution of P14 and lower energy cost. This has increased our DCF valuation to Rp22,500. We maintain our Buy rating on the counter with boosted recovery from infrastructure spending while strong cash flow generation enable the company to fight competition. Chandra Pasaribu PT Indo Premier Securities chandra.pasaribu@ipc.co.id +62 21 5793 1168 Year To 31 Dec 2013A 2014A 2015F 2016F 2017F Revenue(RpBn) 18,691 19,996 18,124 19,168 21,152 EBITDA(RpBn) 6,757 6,613 5,917 6,498 7,237 EBITDA Growth (%) 6.4 (2.1) (10.5) 9.8 11.4 Net Profit(RpBn) 5,010 5,271 4,301 4,455 5,016 EPS (Rp) 1,361 1,432 1,168 1,210 1,362 EPS Growth (%) 5.2 5.2 (18.4) 3.6 12.6 Net Gearing (%) (54.1) (44.9) (36.2) (43.7) (37.1) PER (x) 15.8 15.0 18.4 17.8 15.8 PBV (x) 3.4 3.2 2.9 2.7 2.5 Dividend Yield (%) 2.1 4.2 2.7 2.8 3.2 EV/EBITDA (x) 13.6 13.7 15.0 14.1 12.6 Share Price Closing as of : 22-February-2016
Fig. 1: Indonesian coal price benchmark is lower (US$/tons) Fig. 2: Electricity tariff to decline (Rp/kWh) Source: Ministry of Energy and Mineral Resources Source: PLN Fig. 3: Volume recovery is still mild (tons) Fig. 4: Market share in domestic market FY15 Source: ASI Source: ASI Demand recovery remains mild. According to Indocement, cement demand growth was only 3-4% in Jan16. There was good momentum building up in the first two weeks but it failed to sustain in the following weeks. Moreover, Indocement had reduced price discount in selected regions. However, if growth momentum is not building up, this discount could be reapplied. We know that Indocement has not changed its strategy to focus on profitability while balancing market share. Last year, Indocement lost market share due to high competition from new entrants. This year, Indocement expects to gradually win back some of the lost markets. The management is aiming to increase market share back to 30%, as a rule of thumb, but probably not this year. No change in competitive landscape. The competitive landscape has not changed entering the first two months of this year. The big three market leaders remain rational in pricing. Indocement s management has no significant concern with the merger of Holcim Indonesia and Lafarge due to different market penetration. New players have not intensified competition despite, we suspect, that new entrants are highly geared. Probably, the new entrants are still on grace period with no pressure on cash flow, while the market continues to grow from infrastructure demand. 2
Year To 31 Dec (RpBn) 2013A 2014A 2015F 2016F 2017F Income Statement Net Revenue 18,691 19,996 18,124 19,168 21,152 Cost of Sales (10,037) (10,910) (10,089) (10,558) (11,482) Gross Profit 8,655 9,087 8,035 8,610 9,669 SG&A Expenses (2,680) (3,233) (3,031) (3,238) (3,598) Operating Profit 5,975 5,854 5,004 5,373 6,071 Net Interest 513 790 710 548 597 Forex Gain (Loss) 0 0 0 0 0 Others-Net 107 146 24 24 24 Pre-Tax Income 6,595 6,790 5,739 5,946 6,693 Income Tax (1,583) (1,516) (1,435) (1,486) (1,673) Minorities (2) (3) (3) (4) (4) Net Income 5,010 5,271 4,301 4,455 5,016 Balance Sheet Cash & Equivalent 12,595 11,256 9,800 12,800 11,800 Receivable 2,519 2,671 2,431 2,571 2,837 Inventory 1,474 1,666 1,658 1,735 1,888 Other Current Assets 181 494 743 194 34 Total Current Assets 16,769 16,087 14,632 17,301 16,559 Fixed Assets - Net 9,305 12,144 14,826 14,535 18,078 Goodwill 13 15 14 12 11 Non Current Assets 403 500 498 498 498 Total Assets 26,607 28,885 30,115 32,496 35,302 ST Loans 0 0 0 0 0 Payable 1,008 1,175 0 997 1,084 Other Payables 1,665 2,037 1,472 1,548 1,695 Current Portion of LT Loans 67 49 49 49 49 Total Current Liab. 2,740 3,261 2,473 2,594 2,828 Long Term Loans 93 76 0 0 0 Other LT Liab. 797 764 706 739 804 Total Liabilities 3,630 4,100 3,179 3,333 3,631 Equity 4,745 4,625 4,625 4,625 4,625 Retained Earnings 18,202 20,160 22,310 24,538 27,046 Minority Interest 30 0 0 0 0 Total SHE + Minority Int. 22,978 24,785 26,935 29,163 31,671 Total Liabilities & Equity 26,607 28,885 30,115 32,496 35,302 3
Year to 31 Dec 2013A 2014A 2015F 2016F 2017F Cash Flow Net Income (Excl.Extraordinary&Min.Int) 5,012 5,274 4,304 4,459 5,020 Depr. & Amortization 780 759 913 1,126 1,166 Changes in Working Capital 250 321 (788) (140) (262) Others (753) (846) (627) (884) 20 Cash Flow From Operating 5,290 5,507 3,803 4,560 5,944 Capital Expenditure (2,392) (3,697) (3,591) (833) (4,708) Others 533 780 708 546 595 Cash Flow From Investing (1,859) (2,917) (2,884) (287) (4,113) Loans (309) (35) (76) 0 0 Equity 0 0 0 0 0 Dividends (1,657) (3,313) (2,150) (2,228) (2,508) Others 366 (205) (57) 33 65 Cash Flow From Financing (1,600) (3,553) (2,284) (2,195) (2,443) Changes in Cash 1,831 (963) (1,365) 2,079 (612) FinancialRatios Gross Margin (%) 46.3 45.4 44.3 44.9 45.7 Operating Margin (%) 32.0 29.3 27.6 28.0 28.7 Pre-Tax Margin (%) 35.3 34.0 31.7 31.0 31.6 Net Margin (%) 26.8 26.4 23.7 23.2 23.7 ROA (%) 20.3 19.0 14.6 14.2 14.8 ROE (%) 23.6 22.1 16.6 15.9 16.5 ROIC (%) 25.9 25.3 19.3 17.8 18.4 Acct. Receivables TO (days) 48.4 46.9 50.8 47.1 46.1 Acct. Receivables - Other TO (days) 0.2 0.4 0.6 0.6 0.5 Inventory TO (days) 6.8 7.0 6.1 6.2 6.3 Payable TO (days) 36.1 36.5 38.5 33.7 33.1 Acct. Payables - Other TO (days) 13.2 14.8 16.8 14.4 14.2 Debt to Equity (%) 0.7 0.5 0.2 0.2 0.2 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 0.0 Net Gearing (%) (54.1) (44.9) (36.2) (43.7) (37.1) 4
Head Office PT INDO PREMIER SECURITIES Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167 Institutional Equity & Private Client Benny B. Soebagjo Head of Equities benny.soebagjo@ipc.co.id Angkula Ruriawan Equity Sales angkula.ruriawan@ipc.co.id Alexander Salim Equity Sales alexander.salim@ipc.co.id Edward Azizy Equity Sales edazizy@ipc.co.id Henry Sutanto Equity Sales henry.sutanto@ipc.co.id Isna Alfiathi Equity Sales isna.alfiathi@ipc.co.id Angky Amarylis Sales Trader angky.amarylis@ipc.co.id Thomas Samuil Sales Trader thomas.samuil@ipc.co.id INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any responsibility or liability as to its accruracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, finacial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Securities or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.