Download PDFVolume-driven earnings performance
- FY18 net profit contracted (-38% yoy) though above market consensus.
- Modest volume growth with ASP upward inflection was in sight.
- Expects mild ASP growth and cautious on renewed competition.
- We maintain HOLD albeit with higher TP of Rp19,100 (from Rp17,400).
Volume-driven earnings growth beating market estimates. Indocement () reported a contracted FY18 net profit of Rp1.1tn (-38% yoy) which was well above our (105%) and market estimates (115%). On the top-line, revenue turned upward to Rp15.1tn in FY18 (+5.3% yoy vs. FY17: -6% yoy) which was a pure volume-driven growth (+5.7% yoy) with a flattish blended ASP (-0.4% yoy). Production costs came higher at Rp10.8tn (+14.8% yoy) as packing costs jumped (+21% yoy) which was reasonably attributable to its terminal expansion in Sumatera and coal energy price also hiked (+22% yoy) in the light of higher coal price. Operating costs of Rp3.3tn exhibited a steady increase (+7% yoy). An outpacing costs growth relative to its revenue renders a lower profitability margins with GPM/EBITDA/OPM/NPM measured lower at 28.8%/15.4%/6.9%/7.5% (vs. FY17: 34.7%/21.6%/13.4%/12.9%). On quarterly basis, 4Q18 net profit was at Rp528bn (+1x qoq, +17% yoy) which was primarily driven by ASP in 4Q18.
Decent volume growth but ASP upward trend is evidenced. booked FY18 domestic sales volume of 17.7mt (+5.7% yoy) which was exactly in-line with our forecast (99.7%). This is particularly a good sales performance as kept the recovery momentum since last seen in FY17 (+4.2% yoy). On quarterly basis, 4Q18 sales volume slowed to 4.8mt (-2% qoq, +4% yoy vs. FY17: +1% qoq, +6% yoy) which was reasonable given several delayed infrastructure projects. In terms of pricing, FY18 blended domestic ASP came flat at Rp748k/t (-0.4% yoy) but the interesting thing to watch is 4Q18 ASP that increased to Rp798k/t (+6.6% qoq, +10% yoy) which was the first positive growth for the last two years. This might imply the price predatory environment is reaching its end as second-tier players are struggling to stay afloat within an oversupply industry with high debt burdens.
Attentions zero in on price recovery as 2M18 volume growth slowed. Our attention now focuses on two points. First, the quality of ASP increase which particularly addresses its ability to adjust price upward without sacrificing its overall and regional market share (and hence its volume growth). 2M19 sales volume decelerated to 2.7mt relative to 2M18 (-0.9% yoy) where both years see same political events take place. We thus believe sales volume growth will soften in FY19F (+5.1% yoy vs. FY18: 5.7%) with its Java's volume share should remain flat. In regard to 's terminal expansion, we slightly tweak our volume share forecast in Sumatera to 11% (from 10.9%). Second, renewed competition on Ex-Java and Sumatera region (c.18% of 's sales volume) by a well-established, second-tier player, we saw an aggressive expansion by Anhui Conch (3.3mtpa in Barru) in the pertaining region.
Valuation. We like 's initiative for a non-excessive capital spending (terminal addition) to expand presence without accessing debt is a right strategy. Our concern is on the absence of future sustained price recovery as this is critically important earnings driver given a lackluster in demand thus far. Valuation is not cheap either with forward EV/EBITDA of 30.7x (vs. : 11.8x). Thus, we maintain HOLD albeit with higher TP of Rp19,100 as we roll over our valuation base to FY19F and lower our risk-free rate to 8% (from 8.5%).
Sumber : IPS RESEARCH
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