Company update:
Indocement Tunggal Prakarsa (INTP IJ, NEUTRAL, TP: IDR17,900)
Competition In Markets On The Rise
Indocement Tunggal Prakarsa (INTP IJ, NEUTRAL, TP: IDR17,900)
Competition In Markets On The Rise
Indocement
had to reduce its selling price to deal with rising competition, yet its 5M16
sales volume was lower than we expected. We anticipate the rivalry to stay
fierce as new cement companies continue to expand market share, especially in
Western Java – Indocement’s stronghold. We remain NEUTRAL, and after lowering
our earnings estimates, cut our DCF-derived TP to IDR17,900 (from IDR20,400, 9%
upside).
♦ Competition to
intensify. This
year we expect Indonesia’s total cement capacity to be at ~91m tonnes pa with
the annual national cement consumption at ~65m tonnes (a 26m tonnes in overcapacity
which we expect for FY16-17, higher than the 22m tonnes in FY15). New players
such as Semen Merah Putih, Semen Jawa, Semen Bima and Conch Cement Indonesia
are likely to produce at their respective full capacities of ~9m tonnes pa, ie
~10% of total national capacity. However, their sales account for just ~5% of
national sales.
♦ Battlefield in
Indocement’s markets. Five new cement companies are aggresively expanding their
market shares in Western Java and Kalimantan, where Indocement Tunggal Prakarsa’s
(Indocement) markets are based. As a result, its May sales volume declined YoY
while national cement sales volume increased. This was the main reason for its
domestic market share slipping to 26.5% in May, from 29.7% in May 2015. Its
5M16 domestic sales declined by 3.2% YoY.
♦ Industry overcapacity
leading to lower selling prices. By our calculations, Indocement has cut its
ex-factory average sales price by 12% in the last 12 months; this is steeper
than its closest peer’s – Semen Indonesia (SMGR IJ, NEUTRAL, TP: IDR10,000) –
which reduced its sales price by 1.8% in the same period. Our ground checks at
building materials stores suggest that Indocement significantly cut its retail
sales price in 1Q16.
♦ Cutting our numbers. We lower our
FY16F-17F earnings to IDR4trn and IDR4.6trn (-11%/-11%) respectively, driven by
the lower sales volume and average sales price. As such, we reduce our
DCF-derived TP to IDR17,900, which implies 17x/14x FY16F/FY17F P/Es
respectively as well. We expect competition in the cement industry to remain
intense, and thus, stay NEUTRAL on the stock.
♦ Key risks to our call include:
i. A relaxation in mortgage payments to
developers;
ii. Faster-than-expected reduction in interest
rates;
iii. Swifter realisation of infrastructure
spending.
Kindly click the following link for the full report: Indocement Tunggal Prakarsa : Competition In Markets On The Rise
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
