Overshadowed by cement oversupply, INTP’s 2Q19 performance was weaker than that in 1Q19 as both cement and ready-mix segments experienced declines in sales. However, expansion plans and new eco-friendly products are keys to INTP’s future performance.


Modest Performance

In 2Q19, INTP accounted for IDR3.2 trillion worth of revenues (+6.7% YoY, -12.9% QoQ); IDR979 billion worth of gross profits (-2.6% YoY, -15.9% QoQ); and IDR243 billion worth of net profits (+167.6% YoY, -38.8% QoQ). The 2Q19 modest performance was attributable to a downturn in cement sales. Additionally, gross margins decreased to 24.6% (vs. 35.8% in 1Q19); operating margins declined to 6% (vs. 10.6% in 1Q19); and net profit margins snapped lower to 7.5% (vs. 10.6% in 1Q19).

A Trend of 2Q Downbeat

Looking back through its performance trend since 2016, INTP consistently posted losses in the second quarter due to Eid holiday when domestic consumption is low. Its 2Q19 mediocre performance marked by cement sales of IDR3 trillion (+8.1% YoY, -13.1% QoQ), ready-mix sales of IDR324 billion (-11.3% YoY, -13.4% QoQ) as sales in Jakarta, Sulawesi, and Sumatra contributed the greatest losses to INTP’s total sales portion. We estimate that in 2019F, INTP is likely to book sales of IDR15.2 trillion based on an assumption of stable ASP that is supported by the total sales from West, Cental, East Java reaching 9.6-9.8 million tons.

Expansion Plans and New Products

INTP in 2019, is likely to acquire a new factory in Java area. If it successfully acquires one factory, its sales volume in Java area will pick up. We are confident that the acquisition is plausible to increase the sales volume of one of its cement brand, Rajawali. Of note, sales of Rajawali brand currently contribute 2% to the total sales volume. INTP’s new product, Tiga Roda Superslag, which is a variant of slag cement, reaps the benefits of slag cement used to construct port projects in West Java. Thus, Tiga Roda Superslag has the potential for driving for INTP’s buoyant sales performance.

HOLD Rating with the Price Target of IDR22,075

The stagnant cement industry and INTP’s premium valuation are two logical takeaways for our HOLD recommendation with the price target of IDR22,075 or a 7.3% potential upside based on the forward P/E of 42x (-0.5 SD). Currently, INTP is traded with a 2019F P/E of 51.4x.


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