Mandiri Sekuritas INTP - FY08 to FY09F Worlds apart

FY08 to FY09F: Worlds apart

In FY08, INTP outstripped its rivals as its growth outperformed peers in both domestic sales volume (+14.2% yoy) and revenues (+33.5% yoy). It reflected bigger market share of 31.6%, while others were losing. Additionally, steady growth in price throughout the period resulted in better-than-expected average selling price (+24.5% yoy), which also translates to improving gross margin of 3.4% to 41.1% in FY08. Net profit was up by 78.1% yoy, which is 18.9% and 11.7% above our and con! sensus es timates. With that aside, company mentioned that FY08 is an extraordinary year, and the situation will be very much different in FY09. They expect volume to drop by some 6% yoy this year and price to be flat. That said, we maintain our Neutral view.

Switch to domestic sales yielded higher average selling price. Domestic sales volume was up 14.2% yoy in FY08, while export slid 37.8% yoy, which dragged total production growth to only less than 1.0% yoy. We favor this as domestic price offers better selling price of around Rp710k/ton (vs export of around US$27/ton).

Better margin amidst escalating energy costs. Cost per ton grew 25.3% yoy to some Rp400k/ton due to increasing energy costs. Cost for power was up by around 23.5% yoy and coal up by around 52.9% yoy. Nevertheless, the company managed to increase its margin. One of the reasons is the switch from export to higher priced domestic sales. Gross margin was up 3.4% to 41.1% in FY08, better than our forecast.

FY09, a different ball game. The company hinted that domestic sales volume may drop around 6% yoy. Up to February, the company posted 14.3% drop in domestic volume. They also mentioned that cost are likely to further increase given higher domestic coal price (up by around 40-50% yoy), combined with depreciating Rupiah to US$. That said, we estimate that cost/ton may increase around 10% yoy. Whilst selling prices may be flat this year compared to FY08. To the contrary, the company may fare m! uch worst hinting slightly reduced selling prices in some areas which experienced significant drop in volumes.

Maintain our Neutral call. We expect domestic sales volume to drop by 4.2% yoy, average selling price to slightly grow by 3.7% yoy, and cost/ton to increase by around 9.8% yoy. That resulted into lower gross margin of 38.4% in FY09 and drop in EPS of 8.0% yoy. However, we noticed that earnings decline in INTP due to coal price re-pricing is least affected compared to its peers. We maintain our Neutral call on INTP, now trading at PER09F of 18.4x and P/BV of 2.0x.