Credit Suisse Indocement FY08 results were better than expected due to better pricing power

Indocement (INTP.JK, Rp4,275, O, TP Rp5,650) - FY08 results were better than expected due to better pricing power; net gearing only 2.5%

Arief Wana / Research Analyst / 62 21 2553 7977 / arief.wana@credit-suisse.com
Indocement's 2008 bottom line beat our forecasts by 15% due to better-than-expected pricing, especially in 4Q08, and its leveraged impact towards pricing. Net profit soared 77% YoY to Rp1.75 tn.

Despite a slowdown in demand (-7% YoY) and rising costs (+18% YoY), the 4Q08 margins still improved thanks to the strong increase in prices of 55% YoY although partly due to lower exports.

The energy-related costs still posted high YoY increase, but started to show a decline on a QoQ basis in line with the decline in oil prices both internationally and domestically. Should this trend continue, we foresee the possibility of a little ASP softening to keep margins unchanged. We maintain our forecasts at this moment.

The company's financial strength continued to improve in spite of booking a forex loss due to its unhedged USD-debt position of only around US$49 mn. Net gearing is only 2.5% and coverage is 34x, and coupled with an utilisation rate of 76%, Indocement's positive cash flow should be positive for its dividends upsides.

Our target price of Rp5,650 implies a 32% upside. We maintain our OUTPERFORM rating.