Indocement (INTP IJ), In the driving seat, from Nick Cashmore - CLSA

Nick Cashmore sees INTP as an excellent proxy for Indonesia’s urbanization, industrialization and an expanding middle class.

The second largest producer of cement with 18.6m tons is well positioned with US$530m of cash on hand. ROE, still superior, is coming down from 28.4% in FY09 to 26.9% in FY10, and 25.6% in FY11. The decline in ROE reflects the build up in cash. But on a ROIC basis, returns continue to improve.

All this will drive future price performance and remains a conviction holding. TP of Rp19k gives 19%, BUY.

Key points from report:
Every 1 % swing in price affects earnings by 1.9%. With USD costs making up 70% of COGS, expected 3% rupiah appreciation = 2.4% price increase
Greatest flexibility with capacity utilization at only 67%, with spare capacity 4.5m mt.
11CL assumes 4% price increase and 7% volume growth, and stable margins overall
Has US$530m cash on hand (31% of assets), with modest immediate capex needs. With US$425m in FCF a year, dividend payout can rise from the current 35%
Domestic demand for cement grew at 6% Cagr over 10 yrs to 40.4m mt, in line with GDP growth. However, per capita consumption is only 167kg vs Thailand’s 440kg
TP Rp19,000 indicates 19% upside. BUY.