INTP:Penetrating ready-mix market - Mandiri

INTP is increasing its presence in the ready-mix cement market by recently adding up 100 new trucks for its bulk segment in response to progress of infrastructure works as well as of high rise property development. The company sees the next two years will be the peak season for infrastructure works, which we also agree, that would boost cement demand, notably for the bulk segment. Domestic bulk cement has grown by 24.3% cumulatively at end of Apr11, while INTP is 37.7% during the same period. We upgraded our call to Buy for INTP with TP: Rp19,000/share. The stock at current market price is still trading within +1 standard deviation from its historical PE. Our TP implies to PE11F of 20.4x.

In-line 1Q11; Modest COGS/ton increase due to ADRO late coal delivery. INTP posted in-line with our but below than consensus 1Q11 results, with COGS/ton increasing by 7.5%, the lowest among major cement companies. Modest COGS/ton increase came in benefit of late coal delivery from ADRO last year, hence eased pressure, especially of its coal cost. However, we expect this is to further increase in the remaining quarters, given the effect of this year’s coal normal price and other commodity items, namely oil and gas that continue accelerating. Oil, coal and gas contribute 60%, 11%, and 13% of our FY11F COGS, respectively.

Expanding bulk market share by doubling cement trucks. INTP is catching the momentum of further increase in the bulk cement demand. The company recently purchased 100 cement trucks and plans to add by another 50 this year to round up a total up to 300 trucks to the company. Robust demand bulk cement is evidenced through confident cumulative sales growth which has reached 24.3% during 4M11. Meanwhile for INTP, its bulk sales have grown by 37.7% during the same period. Ready-mix contributed 10.0% to the company’s total 1Q11 revenue, vs. last year of only 5.6%.

Minimal threat from new Chinese player. Domestic cement industry has recently acknowledged a new market player from China (China Triumph International Engineering Co Ltd (CTIEC) who is with small local player PT Semen Grobogan investing in a new cement plant totaling 2mn tons in capacity, to be ready by 2014. However, we think the threat will be minimal, at least in the near term, considering the sector is a brand equity market that may take sometimes for the new player in order to win market share.

Switched to Buy. We upgraded our call to Buy with TP: Rp19,000/share. INTP at current market price is still trading within +1 standard deviation from its historical PE. Our TP implies to PE11F of 20.4x.