Nick Cashmore wrote a report on Indocement (INTP IJ). Financial difficulties by one of Heidelberger main shareholders mean higher dividends and corporate action should be expected. We raise our TP for INTP to Rp5,700 (from Rp4,100) and maintain our OPF call.
a great asset. It has a strong brand and distribution channels in greater Jakarta and West Java (cement is not pure commodity in Indonesia, brand loyalty is a very important factor). INTP had 54% market share in greater Jakarta and West Java, arguably amongst the most important market for cement in Indonesia. The company has total capacity of 17.1mn tonnes with 85% utilization, so there is still some spare capacity.
cautious outlook for cement demand in 2009, assuming a 10% decline in volume and 10% decline in prices. From datapoint standpoint, domestic cement sales volume in Feb 09 was down by 2.4% YoY in Feb09, bringing the year to date volume to 5.6m tonnes, down 3% YoY. But this is only a pause in an attractive long term story, in our view.
Key points from the report:
* banner 2008, expect moderation in 2009
* moderation is only a pause in an extremely attractive long term story.
* Balance sheet is defensive, will be in strong net cash position this year.
* room for higher dividend payments, although we have only currently assume 15% payout.
* Corporate action in the wind? Further upside if M&A angle crystallize.
* Valuation: at US$90 EV/tonne, the stock is trading at below replacement cost of around US$140/tonne. Stock is at 10x historical earnings and 15x our extremely cautious forecasts.
* raise our TP for INTP to Rp5,700 (from Rp4,100) and maintain our OPF call.
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