Indocement recorded superior performance in FY09 which was boosted by higher ASP and lower production cost. All in all, the FY09 figures were above our expectation and Bloomberg consensus. We have revised upward our forecast and came up with an estimate of earnings growth of 23.3% this year and 18.7% next year. We view Indocement’s position in the sector as favorable: ample capacity with strong balance sheet. We maintain our BUY recommendation with a new fair value at Rp 19,100 per share which offer 35% upside potential.
Strong Performance: run above expectation
Indocement recorded a strong 2009 performance which was boosted by 17.2% YoY higher blended average selling price (ASP) amidst lower cement volume sales (-8.5% YoY) due to global economic crisis. The FY09 revenue figure grew by 8.1% YoY attained to Rp 10.58 trillion, higher than our estimate and Bloomberg consensus.
Slightly lower market share and higher margin: a trade off
Despite YoY lower sales that lead to a slight decrease in market share, Indocement manage to increase its profitability. Higher margin is achieved through price increase and tight cost efficiency program. Cost efficiency program include step in diversification energy source and optimization of the procurement and supply chain operations to cope cost escalation in almost every aspect of operation.
Solid and healthy balance sheet
As the result of its strong balance sheet, Indocement will allocate capital expenditure funding of around Rp 655 billion from internal fund. The fund will be used for the construction of one cement mill located in Citeureup plant with total capacity of 1.5 million tones p.a. which will be built in 2H10 and expected to operate in early 2012. We favor the company’s plan for expansion, for it leaves Indocement with stable utilization rate, currently at 75%, lower compared to its peer.
3.77% dividend yield potential
Because of its superb FY09 performance, the company would likely to distribute a higher cash dividend for the investors. We assume FY09 Indocement’s dividend payout ratio at 40% which equivalent to Rp 298.45 per share totaling of Rp 1.1 trillion. Based on average 2009 Indocement closing price, it represents a 3.77% dividend yield, higher than 2008 fiscal year of 3.26% dividend yield.
Profitability will remain high in FY10
We forecast Indocement’ profitability will remain high in FY10E on the back of robust domestic demand (+9.5% YoY), higher ASP (+12.5% YoY), lower production cost compared to its peers (+1.1% /ton YoY), and stable Rupiah currency movement against US$.
Maintain BUY rating with higher fair value
Our revise input has resulted in a new fair value at Rp 19,100 per share from previously Rp 16,150 per share, which is calculated with 9.3% risk free rate and 4.84% market risk premium assumption in our DCF-method calculation. At yesterday closing price, the counter was traded at 15.44x-4.03x PE-PBV FY10F valuation. Therefore, we maintain BUY recommendation as our fair value offers 35% upside potential.
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