Mandiri Sekuritas INTP: All is well

Overall, 1H10 results were in line with our and consensus estimates. Improving net margin to 30.6% from 26.0% in 2009 was due to 1) some of its export allocation was switched for domestic consumption, 2) lower cost/ton by some 8% yoy, 3) higher net interest income, and 4) forex gains instead of loss. Going forward, lower clinker factor to below 80% and higher usage of alternative fuel, will offset increasing electricity cost, should selling price remain at the current level. Nevertheless, we have factored in such improvement in our forecast, thus we maintain our Neutral call.

July cement consumption up 19% yoy. INTP’s 1H10 domestic sales volume rose 17.3% yoy, the second highest among cement producers in the country. As a result, its market share has gone up to 31.2% from 30.2% in FY09. Such figure is already higher than our FY10 growth target of 14.3%, thus, should demand be sustained throughout the year, this would provide an upside to our current valuation.

1H10 results were in line with expectations. Despite relatively stable domestic price tag starting end of 2009, as indicated by the company, INTP was still able to boost its gross margin to 48.3%. It was due to higher domestic sales portion compared with exports. Therefore, growth in the bottom-line level (of 57.4% yoy) was significantly higher vs. the top-line level (of only 8.1% yoy). More-than-double interest income (of Rp78bn), combined with forex gains (instead of losses), were the other reasons for the better net margin. Overall, FY09 results were in line with our and consensus estimates.

Increasing alternative energy usage. The company is applying alternative fuels in its kilns to reduce fossil fuel consumption (mainly coal) . Various alternative fuels used including waste tires, waste oils, plastics, papers, textiles, etc. It said that it was able to replace around 3% of coal usage in 2009, and is targeting the figure to increase to 4.5% in 2010. Note that the company also uses additive material to reduce the clinker content in its cement product.

Maintain our Neutral recommendation. Efficiencies in the following months will be coming from lower clinker factor and higher usage of alternative fuels. This will help uphold its position as a cement producer with the lowest cost/ton (of around Rp394k/ton). Yet, INTP’s current share price has almost reached our target price, we therefore maintain our Neutral recommendation.