PT Indocement Tbk – Still Attractive - AAA Securities

Summary
Although sales only increased slightly due mainly to volume, INTP’s net profit increased significantly by 17% yoy. This was due to the contribution of higher operating income (as INTP did better in expense management) and interest income. Going forward, favorable climate in property and infrastructure sectors as well as the relatively low interest on housing loans will be the growth catalyst for INTP. We recommend BUY with target price Rp19.000 based on blended valuation method.

2010 Financial performance
INTP sales during 2010 increased by 5% yoy to Rp 13.8 trillion, mainly due to higher sales volume of 13.8 million tons (2009: 13.4 million tons) while price has not changed much. Spurred by favorable domestic demand, exports decrease by 35% yoy to only 1 million tons, while sales to the domestic market increased by 8.5% yoy to 12.5 million tons. The latter growth of 8.5% in domestic market is well above the national average of 6.2%. As such, INTP’s market share increased slightly to 30.9% (2009: 30.2%). Amid the capacity constraint faced by domestic cement producers, INTP could still enjoy higher growth than its peers as its utilization rate is still 73%, while Semen Gresik and Holcim have reached 100% and 82% respectively. The availability of the capacities has placed INTP favorably to capture an increase demand for cement in the short term.

Operating profit & net income growth
The gross profit to increase by 8% yoy to Rp 5.5 trillion and gross profit margin increased to 49.7% in 2010 (2009: 48.3%) due to stronger Rupiah in 2010 and relatively stable fuel price. This caused operating profit to increase by 9% YoY to Rp 4, 020. INTP’s net income in FY2010 improved significantly by 17% yoy to Rp3.2 trillion. Apart from the higher operating income, interest income of Rp 167 billion also contributed to the net income.

Outlook & valuation
With the level of economic growth of 6.4% in 2011, domestic cement sales will grow around 6% - 8% this year. Relatively low interest on loan, the growing demand for housing and infrastructure sectors will be the drivers of INTP’s growth this year. By using a blended valuation method (DCF, PE and EV/ton), our target price is Rp19.000, hence, our BUY recommendation.