Results Review: Indocement Tunggal Prakarsa (INTP IJ, NEUTRAL, TP: IDR17,900), Likely Better 2H Sales, But Rivalry To Stay Fierce Unknown Senin, 01 Agustus 2016




Results Review:
Indocement Tunggal Prakarsa (INTP IJ, NEUTRAL, TP: IDR17,900)
Likely Better 2H Sales, But Rivalry To Stay Fierce
Despite anticipated better sales – which are cyclically high in 2H – we expect rivalry to stay fierce as new cement companies continue to expand their market share, especially in Western Java, Indocement’s stronghold. The industry overcapacity situation is also leading to lower selling prices. Indocement focuses on reducing its cost per tonne to maintain its EBIT margin. We remain NEUTRAL, with DCF-derived IDR17,900 TP (5% upside) implying 17x/14x FY16F/FY17F P/Es respectively.

♦      We expect better sales, but rivalry to stay fierce. We expect cement demand to increase in 2H16, driven by higher government spending on infrastructure projects, as well as higher property sales that benefit from relaxation of mortgage policies. However, five new cement companies are aggresively expanding their market shares, especially in Western Java and Kalimantan, where Indocement Tunggal Prakarsa’s (Indocement) markets are based. Given this situation, Indocement is likely to further lower its selling price to maintain its market shares. Indocement focuses on improving cost efficieny to boost its EBIT margin.
♦      Reiterate NEUTRAL. Our DCF-derived IDR17,900 TP implies to 17x/14x FY16F/FY17F P/Es respectively. Key upside risks to our call include:
                   i.   Faster-than-expected reduction in interest rates;
                  ii.   Swifter realisation of infrastructure spending.
The key downside risk is cement companies’ huge selling price discount, which aims to increase their market shares in Indocement’s base markets.
2Q16 core earnings: broadly in line
(IDRbn)
2Q16
1Q16
QoQ
2Q15
YoY
Comments
Revenue
3,813
3,929
-2.9%
4,547
-16.1%
In line - 1H at 44% of FY
EBIT
873
1,078
-19.0%
1,326
-34.1%
Below - 1H at 40% of FY
EBIT margin
22.9%
27.4%
29.2%

Pretax income
1,016
1,231
-17.4%
1,500
-32.2%
Broadly in line - 1H at 43% of FY
Pretax margin
26.7%
31.3%
33.0%

NP - reported
1,471
958
53.6%
1,110
32.6%
Above - 1H at 61% of FY, thanks to tax benefit from asset revaluation
NM - reported
38.6%
24.4%
24.4%


Source: Company data, RHB
♦      Higher 2Q earnings on tax benefit. 2Q16 earnings rose 54% QoQ thanks to tax benefit from asset revaluation. Excluding the tax benefit, pre-tax income was in line with our expectation, but below the consensus estimate (achieved at 43% of our FY16F vs consensus’ 39%).


Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT. RHB Securities Indonesia
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