Overall, FY09 results were slightly above consensus, yet inline with ours. Improving net margin (to 26% from 17.8% in 2008) was due to 1) some of its export allocation was switched for domestic consumption, 2) lower transportation and selling expense (-10.7% yoy), and 3) higher interest income (+137.7% yoy). Going forward, lower clinker factor of around 79-80%, as well as lower distribution costs will help reduce cost/ton. This year, we believe volume growth will be significantly higher compared with to 2009, and projected 9.5% yoy growth. We maintain our Buy call for INTP with a price target of Rp16,000/share.
FY09 results were slightly higher than expectations. Higher price tag in 2009 (of around 15% yoy) offset lower domestic sales volume of only some 11.6mn, or -8.4% yoy. Therefore, growth in the bottom-line level (of 57.4% yoy) was significantly higher compared with the top-line level (of only 8.1% yoy). Doubling interest income (of Rp78bn), combined with lower transportation and selling expenses (-10.7% yoy) were the other reasons for the better net margin. Overall, FY09 results were slightly above consensus estimates, yet in line with ours.
Demonstrable ability to capture increasing demand. Should we apply FY09 production, the company still has 3.9mn tons of idle cement production capacity, out of 17.1mn currently. Thus, it can still cater to demand should it increase by 29.7%. Moreover, a new cement mill in Cirebon (1.5mn tons) which will be completed in May 2010 will help INTP’s ability to seize soaring demand even more. This indicates that it has no capacity constrain in the medium term, in our view.
February cement consumption up 19% yoy. INTP’s 2M10 domestic sales volumes were up 19% yoy. The figure was the second highest among cement producers in the country. As a result, its market share has gone up to 30.8% from 29.3% in February 2008. For 2010, we expect its domestic volume growth to reach 9.5% yoy, while exports dropping by 35.0% yoy. Thus, should demand be sustained throughout the year, this would provide an upside to our valuation.
Top pick for the sector. Efficiencies in 2010 will be coming from lower clinker factor and less distribution costs. This will help uphold its position as a cement producer with the lowest cost/ton (Rp415k/ton). Moreover, plenty of idle capacity will be another advantage for the company in the medium term. We thus maintain our Buy recommendation with a target price of Rp16,000/share.
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