Stock Recommendation: Indocement (INTP) Reaps the Benefits of Expansion

STOCK RECOMMENDATION - JAKARTA. PT Indocement Tunggal Prakarsa Tbk (INTP) has started to reap the benefits of its expansion and acquisitions. These actions are expected to boost INTP's cement sales volume and improve logistics efficiency.

Indocement Tunggal Prakarsa's CEO, Christian Kartawijaya, revealed that throughout 2023, INTP recorded a total sales volume (cement and clinker) of 19.3 million tons. This is an increase of 1.75 million tons or a growth of about 10% compared to the previous year.

This achievement includes a full year's volume from the Maros operation, plus one month's volume from the Grobogan operation. The total market share of INTP's domestic cement also increased from about 26% to 27.3% in 2023.

Just a reminder, in September 2022, INTP started a lease agreement with PT Semen Bosowa Maros. This includes a grinding unit in East Java, an integrated cement plant in Maros, and terminals in Sulawesi and Lombok. Meanwhile, on December 1, 2023, INTP acquired PT Semen Grobogan.

"We have consolidated the lease of assets with Semen Bosowa Maros. If in 2022 it was only for three months, in 2023 it was for 12 months. Then one month in December 2023 from the acquisition of Semen Grobogan," explained Christian in a press conference, Monday (25/3).

Of the total INTP cement sales volume of 19.3 million tons in 2023, 18.7 million tons were absorbed by the domestic market. Meanwhile, the export market contributed 579,000 tons. Sales to the domestic and export markets each grew by 8.6% and 89% annually.

In the export market, the largest sales, especially for clinker products, were aimed at three countries. Namely Bangladesh, Australia, and Brunei Darussalam. In the domestic market, Christian revealed that there was a rapid increase in demand from Kalimantan and eastern parts of Indonesia such as Sulawesi, Maluku, and Nusa Tenggara.

The main drivers of growth in these regions came from the Nusantara Capital City (IKN) project and the smelter or mine downstream project.

"However, that growth came from a low base (comparison from a smaller previous position). While in terms of volume, Java is still the largest," added Christian.

In terms of the industry, the national cement condition is still in a state of oversupply. However, Christian predicts that the strong demand for bulk cement will continue this year, in line with the acceleration of IKN construction. Meanwhile, the increase in bagged cement consumption in the residential property market will be driven by VAT incentives from the government.

Demand from the property sector and construction and infrastructure projects play an important role in the growth of the cement industry. This is because 71% of national cement sales are in bagged cement products and 29% from bulk cement.

Considering the macroeconomic conditions after the Election & Presidential Election and the potential for a decrease in interest rates in the second semester, INTP predicts that national cement demand this year will grow by about 2% - 3%. Meanwhile, for INTP itself, Christian targets that sales volume this year can grow between 9% - 10% or increase by about 1.7 million tons - 1.8 million tons.

After reaping the benefits of leasing assets with Bosowa Maros last year, this year INTP is ready to harvest the results of the Semen Grobogan acquisition. Christian said, the acquisition of Semen Grobogan will strengthen INTP's position in the Central Java market with an additional supply of about 1.5 million tons.

The acquisition of Semen Grobogan also provides benefits for INTP in terms of logistics efficiency. Because the Central Java market is no longer dependent on supplies from factories in West Java, namely Citeureup Bogor and Cirebon.

In addition, INTP has also built the Samarinda Terminal with four silos each with a capacity of 2,500 tons. This additional asset allows INTP to supply up to 10,000 tons of bulk cement per month for the IKN project.

In addition to IKN, INTP is also targeting smelter projects and hydroelectric power plants in North Kalimantan.

"This regional expansion supports Indocement's long-term roadmap, enabling stronger and more reliable product distribution for customers," Christian revealed.

To support its operations and business strategy this year, INTP has allocated capital expenditure (capex) of IDR 1.5 trillion. For comparison, last year INTP absorbed capex of around IDR 2.5 trillion. This figure includes IDR 1.5 trillion to acquire Semen Grobogan, while IDR 1 trillion was used for operational needs.

Meanwhile, for the projection of INTP's revenue and net profit this year, Christian has not detailed it. He said revenue and profit performance will be determined by several factors, including product prices and production costs.

"The price depends on market conditions, which we currently cannot increase. Because the market is still flat, up about 0.4%-0.5%, still a little," said Christian.

Even so, Christian is optimistic that INTP's revenue will grow in line with the increase in sales volume. Meanwhile, net profit will be boosted by efficiency.

"Our profit should grow better because there are logistics costs that we can save, that's one of the effects," concluded Christian.

For information, INTP earned a net profit of IDR 1.95 trillion throughout 2023, growing 5.97% compared to the profit of the previous year. Meanwhile, INTP's net income grew 9.92% to IDR 17.94 trillion last year.

Phintraco Securities Research Analyst Arsita Budi Rizqi predicts that INTP can continue its performance growth this year. Additional catalysts come from the acquisition of PT Semen Grobogan.

"We see that the acquisition will contribute to increased production capacity, and efficiency, and strengthen INTP's penetration in Java," said Arsita.

In addition, INTP's preparations to strengthen penetration outside Java, especially in the IKN project, can provide a positive contribution. Samuel Sekuritas Indonesia analyst Daniel Widjaja also predicts that the momentum of INTP's performance increase can continue in 2024.

Arsita and Daniel both pinned a buy recommendation for INTP shares. Arsita assesses the potential fair value of INTP at the level of IDR 11,794. Meanwhile, Daniel set the target price of INTP at IDR 11,200.

Meanwhile, Equity Analyst Kanaka Hita Solvera William Wibowo suggests waiting and seeing first. Observe support at the IDR 8,500 level, with resistance at the IDR 8,900 position. Meanwhile, in trading on Monday (25/3), the price of INTP strengthened by 1.45% to the price level of IDR 8,725 per share.