DBS Indocement Tunggal: 3Q09 results not encouraging (Hold prev Buy, TP Rp10,500)

At a Glance

· 9M09 net earnings of Rp1,868bn (+78% y-o-y) inline with our forecast.
· Net earnings grew 4.0% q-o-q; slight decline in EBITDA margin.
· Downgrade to Hold.

Comment on Results
3Q09 results not too exciting. INTP reported 3Q09 flat sales of Rp2,628bn despite 4.8% growth in domestic sales and more export and clinker sales during the quarter. As such, its EBITDA margin saw a slight decline to 39.8% from 40.1% in 2Q09. As INTP did some restatement of its 9M09 financial statement, we believe that 5.2% q-o-q increase in gross profit may not reflect the actual situation for the quarter. Nevertheless, the average sales/ton of the company fell 7.9% q-o-q as more export and clinker sales meant lower margin. G&A increased 12.1% q-o-q on the back of higher salary expenses.

Still in net gearing position. INTP’s balance remains healthy with net cash position. Short-term loans were Rp242bn and guaranteed by its parent company, Heidelberg Cement.

Recommendation
Downgrade to Hold. We remain upbeat on cement sales on the back of growing economic momentum. We believe that infrastructure developments will be accelerated. However, we believe that the valuation of the stock is demanding. We downgrade our call to Hold with TP remaining unchanged.