INTA: New coal on the block - Mandiri

We met with Intraco Penta’s (INTA) management yesterday during an analyst meeting. We visited the head office in Cakung, which is only 1 hour from Jakarta. INTA was nearly neglected in the past due to its small size and low liquidity of trading in its stocks. But along with company’s robust performance and expansion, many corporate actions are expected in coming months. INTA plans for an upward integration on its business through coal mining acquisition, which is still under due diligence process currently. The upside toward its future earnings is undeniably intriguing once INTA successfully has closed the coal acquisition deal. As a result INTA’s share price has jumped fivefold in a year.

Strong synergy and solid team. INTA was established in 1970 by Mr. Halex Halim and listed in the bourse in 1993. INTA has an attractive business model, which is to give best total solution provider in construction equipment industry supported by its four business pillars consisting of: 1.) PT Intan Baruprana Finance (IBF) - financing solutions, 2.) Terrafactor Indonesia (TFI) - rental solutions, 3.) PT Karya Lestari Sumberalam (KASUARI) - mining solutions and 4.) PT Columbia Chrome Indonesia (CCI) - manufacturing and engineering solutions. INTA has solid and loyal management team, with average experiences of more than 15 years. INTA has strong brand name products like Volvo which contributes 76% of its total sales.

Expansion year 2011. INTA has secured the legally binding agreement in term of option regarding its coal acquisition plan amounting to US$250-300mn followed by several requirements such as: a.) it has commenced production, b.) it has JORC certification and c.) it has off- take agreement with a long- term contract of around 10Mt with China electricity producers. The financing scheme will come from rights issue, which is expected to be executed in September 2011. The coal asset is expected to have 150-200Mt in coal reserves and low rank quality which will be accounted under KASUARI’s book. KASUARI also has awarded coal mining contract worth US$125mn to Harsco Mineral. Beside that, INTA also plans to issue bond worth around US$50mn and raise LC line around US$150mn to support its sales.

Robust performance and attractive valuation. INTA has booked tremendous earnings growth with revenue CAGR for FY06-FY10 of 32% and EBITDA CAGR for FY06-FY10 of 57%. In FY10 INTA has sold 849 units of heavy equipments, +76% yoy, and it aims for 1,293 unit sales in FY11, +52%yoy. As of March 2011, sales orders have reached 897units, representing 69% of the FY11F target. FY10 net profit was reportedly up 122%yoy to Rp83bn and is expected to jump by 88%yoy to Rp155bn in FY11. Based on this forecast, INTA is traded attractively at 10.3xPER11F around 30% discount compared with UNTR and HEXA.