INTP Potential Increase in Dividend - Indopremier Securities

INTP might increase market share for the next two years. It has flexibility and plenty of cash to sustain higher dividend payout. The 34.1% upside margin is the highest among cement stocks.

Snatching market share
The next two years could be an important milestone for INTP. With 68% utilization by the end of FY10 and anticipated 28% increase in public infrastructure spending to reach US$ 13.5 billion in 2011, INTP has positioned itself as a major contender to seize market share. Our forecast incorporates 2% increase of market share for the next two years.

Cost Control and increase in ASP to maintain margin
With 30s% of COGS comes from oil and coal, we anticipate a rising pressure from cost side due to upside volatility of brent crude oil and thermal coal. Historically however, producers have been able to reengineer its process to reduce cost and maintain margin with increase in ASP. In 2008 for instance, we saw an increase of 26% in COGS while oil and coal indexes up by 34% and 97% YoY. We forecast 18.22% increase in COGS in FY11 with reversal to 3.72% increase in FY12.

Possible increase in dividend payout
The company has been aggressively paid down debt and currently retains merely 1% D/E. In term of capital expenditure, there is no immanent major spending despite additional capacity from Citeureup plant in 2012. In fact, the company operates relatively lower lifetime of machinery compared to the two major competitors. Abundant operational cash flow can sustain higher dividend payout.

TP of 19,250 with 34.1% upside potential, BUY
We arrive at our target price with the assumption of increase in domestic ASP by 8% in FY11 backed by cost-side pressure and pricing power, before being held up with merely 2% increase in FY12 due to already high ASP level. Our recommendation is BUY with TP of Rp. 19,250.