Indocement, Poised for growth, CLSA

Indocement has excess capacity and less cost pressure to deliver the
highest profit growth for FY12 vs peers. We raised our ave. selling price
growth assumption to 4%; ytd prices rose by 2%. We expect GP margin
to rebound to 48% in FY12 (FY11:46%), maintaining its superior margin
vs peers. INTP has no debt, and generates enough cashflow to fund more
expansion in the future. Valuation is still attractive vs peers. BUY.


Excess capacity to grab market share
INTP has excess capacity in 2012 to grab market share. INTP 2M12 sales
grew 23.7% YoY, vs market at 19.4% (record high in five consecutive years).
We expect INTP 2012/13 volume to rise by 12% YoY; 2M sales at 15% of
FY12E. The decision to expand Citeureup’s capacity by 4.4m tonnes (2016) is
very positive, given the uncertainty on the green-field project. This with
1.9m tonnes grinding mill (2013) will increase capacity by 34% (to 24.9m).

To maintain superior margin
We raised our ASP growth assumption to 4% from 3% previously, which will
more than offset higher energy costs. Ytd, INTP had raised prices by 2%.
The delay of electricity tariff hike provides some relief to cost pressure. We
expect GP margin to rebound to 48% in FY12 from 46.2% in FY11. We have
also factored in higher subsidized fuel price (mainly affecting transportation
cost, part of selling expenses). GP margins will remain the highest vs peers.

Strong cashflow generation
INTP is sitting on US$750m cash with no debt, and an expected future yearly
operating cash flow ex-divd of US$400m. INTP plans to increase capacity to
30m tonnes in next five years; ~US$2.4tn capex (or ~US$476m yearly
capex). INTP should be able to finance this expansion easily from internal
cashflow, giving room to increase its dividend payout from current 30%.

Maintain BUY
We maintain our positive outlook on Indo cement sector. Indo is moving up
the curve in cement consumption and GDP/capita. We tweaked our profit
forecasts for INTP by ~3% for FY12/13, and raised TP to Rp22,000. Future
demand upside will come from multiplier effect from more infra development
in the country. INTP trades at 15.4x PE12 (12% discount to SMGR, at par
with regional peers), and an attractive 9.7x EV/EBITDA vs. regional peers ave
at 11.4x, while delivering higher ROE.

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