Indopremier INTP Strong 1H10 Result, Inline with Expectation

Indocement recorded superior performance in 1H10, triggered by strong residential market and lower production cost per ton. All in all, the 1H10 figures were inline with our expectation, in which the company revenue and net profit has reached 43% and 48%, respectively, compared to our FY10 forecast. Indocement’s share price has advanced significantly, but the valuation remained attractive on the back of its ample capacity, the lowest production cost and superior profitability compared to its peers this year, as well as continues to recorded net cash position. We maintained BUY recommendation with new fair value of Rp 19,400 per share due to several changing assumption in DCF-method calculation which still offers 18% upside potential from its yesterday closing price.

Strong 1H10 result, inline with expectation
Indocement booked a 11.8% YoY revenue growth in 1H10 attained to Rp 5.4 trillion which was triggered by the continuing strong domestic demand, mainly from residential market. We noted that the company’s domestic sales grew by 17.4% YoY, higher than national domestic demand which only expanded by 11.5% YoY. Given solid top line performance, lower COGS/ton and optimizing supply chain operations, the company was able to recorded remarkable profitability during the same period. All in all, the 1H10 figures were inline with our FY10F forecast, where Indocement’ revenue and net profit figures have covered 43% and 48% of Rp 12.5 trillion and Rp 3.4 trillion, respectively.

Remain booked 2Q10 remarkable profitability
On quarterly basis, Indocement still recorded remarkable profitability in 2Q10 despite slightly slumped compared to the previous quarter due to lower ASP and higher labor cost. Nevertheless, the gross margin can be maintained at 50% level thanks to its lower production cost. Meanwhile, re-operate several inefficient kilns have resulted in lower EBIT and EBITDA margin. Going forward, we expect the electricity tariff hike would give insignificant impact to production cost since the company has owned electricity power so that the remarkable profitability would be well-maintained.

Improving market share, supported the excess capacity
Backed by bullish domestic demand and excess capacity, Indocement had success to recapture the lost domestic’s market share gradually, which soared by 220 bps YoY and 102 bps QoQ in 2Q10. We suspected that Indocement expropriated Semen Gresik Group market share due to SGG has limited cement production capacity (93% utilization).

Maintain BUY recommendation – fair value Rp 19,400
We use 2011 as the basic year and we get the fair value of INTP becoming Rp. 19,400 per share. Indocement’s share price has advanced significantly, but the valuation remained attractive on the back of its ample capacity, the lowest production cost and superior profitability compared to its peers this year, as well as continues to recorded net cash position. Hence, we maintained BUY recommendation for the stock since our fair value offers 18% upside potential from its yesterday closing price.