Second quarter performance is in line to our forecast, despite higher than expected sales volume was being offset by lower margin due to higher coal fuel and labor cost. Despite raising cost, INTP still the most efficient operator with the highest excess capacity of 6 MT last fiscal year. We reiterate our BUY recommendation and maintain TP at Rp 19,300.
In-line, Higher Volume Offset Lower Margin
Despite relatively flat ASP (Rp 803k 1H11 vs Rp 805k 1H10), cement sector continues to demonstrate strong demand in domestic market with increase in volume around 14.5% for INTP, surpassing our beginning year estimation of 8.5% and 51.3% to our total full year estimate. On the downside, the Company experienced 3% gross margin squeezes, primarily due to higher coal fuel and rising labor cost to some degree. Yet all in all, revenue and net income are in line with our FY11 forecast at 50.29% and 47.07% respectively.
The Most Efficient Operators
Regardless of recent squeeze in profitability margin, INTP is still the most efficient producer with operating margin of 33.68% compared to SMCB (21.35%) and SMGR (30.82%), along with profit margin of 25.4%, compared to SMCB (13.34%) and SMGR (24.73%). Further, with excess capacity almost 6 MT last year, it shall require less capital expenditure compared to its peers. This in turn justifies higher EV/EBITDA and P/E multiples.
Maintain TP Rp 19,300. Reiterate BUY.
We set our target price based on DCF method with WACC of 14.21% and cap rate of 7%. Second half bottom line performance is in line with our beginning year forecast, and taking that into account we maintain our target price at Rp 19,300. On comparable measure, P/E ratio stands at 16.35x compared to SMCB at 17.83x and SMGR 14.14x, thus it is relatively cheap considering 1) higher profitability margin and 2) highest excess capacity. Risk to our call is another round of fuel price hike.
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