Indocement Tunggal (INTP, N, PT Rp18,400): Positive on Demand Growth, TP Raised to Rp18,400 - Credit Suisse

We like INTP on its price leadership position and strong balance sheet. Unfortunately, INTP is more conservative than its competitors in expanding its production capacity. We continue to prefer SMGR amid its market share leadership, on track capacity expansion and non-Java exposure.

· Analyst Ella Nusantoro maintains her Neutral rating on INTP stock, but raises the TP to Rp18,400 – vs Rp17,400 previously. The new target price implies 18.1x/15.8x 2011/12 PE, with 18% 2011-13 EPS CAGR.
· Ella’s new TP above is driven by higher sales volume assumption, projected at 10% CAGR in 2011-13. The higher volume growth is in-line with the expectation of higher investments in Indonesia post the passing of the land reform bill over the next 6-9 months.
· INTP EBIT margins is expected to contract this year, to 35% from 36%, on higher energy cost (45% of total) – although strong rupiah is mitigating some of the cost pressures (50-55% of the cost is denominated in US$) – before normalizing in 2012.
· INTP is targeting to complete 2.0 mn tpa cement mill in Citereup, W Java by 2013 – costing US$110 mn, funded through internal cash. At the end of March 2011, INTP is in Rp5.0 tn net-cash position, which is expected to soar to Rp6.8 tn by the end of the year.