INTP Jun2023

INTP

Contact our analyst Eka

BUY, 38% Upside
9th June 2023
Price Rp 9,600
Target price Rp 13,300

Seasonally Lower demand in April but should rebound in May

Seasonally lower demand in April but should rebound in MayIn the first quarter of 2023, domestic cement sales weakened by -6.5% YoY to 14.3 million tons. This was due to prolonged heavy rains and the fasting season, resulting in a bag market decline of -9.3%, while the bulk market grew by +2.1%.
However, INTP's cement sales volume increased by 9.6% YoY to 4.3 million tons, with a small bag sales volume growth of +0.2% YoY (Java -18.6% YoY, outside Java +41.3% YoY), and the bulk market maintained growth of +13.6%.
In April 2023, domestic cement sales were weaker due to the holiday season, with volume declining by -38.8% MoM or -31.0% YoY to 2.98 million tons. The bag market weakened by -33.8% YoY, and the bulk market weakened by -23.2%. This impacted lower January-April domestic volume by -4.2% YoY to 19.1 million tons.
However, the decrease in INTP sales volume was not as significant in the domestic market, with a -12.3% YoY in April of 1.2 million tons, with bag sales volume decreasing by -13.7% and bulk sales volume by -8.5%.
For May sales volume, there is likely to be an improvement as the Eid holiday fell at the beginning of May. We maintain our forecast for positive sales volume growth in 2023 as domestic demand is likely to recover with ongoing infrastructure projects, which will boost cement consumption.

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Margin recovery continues

In terms of margin recovery, INTP's margin continues to recover YoY due to lower coal prices, a 100% DMO price for coal, and an increase in the average selling price since last year.
In the first quarter of 2021, INTP sales increased +19% YoY to IDR 4.24 trillion, in line with higher prices and volumes compared to last year.
INTP's bottom line increased +103% YoY to IDR 371 billion, and the NPM increased to 8.7% from 5.1% in 1Q2022.
Fuel and power costs decreased by -6.9% YoY to IDR 1.32 trillion, inline with the securing of 100% of coal supply at DMO prices, while raw material costs increased by +23.6% due to higher volumes.
This resulted in a higher cost of revenue of +14% YoY, while gross profit still increased by +33% YoY to IDR 1.27 trillion with a higher GPM of 30.1%.
We expect INTP to maintain better margins amid softer coal prices and a higher ASP, and we predict a INTP profit of IDR 1.95 trillion this year, which is an increase of +6.2% YoY.

Valuation: Maintain BUY with TP 13.300

In terms of valuation, we are now targeting INTP to trade at a 23x 2024F PE within a year, with a target price of IDR 13,300, representing +38% upside. Therefore, we maintain our recommendation to BUY.

Previously

INTP Apr2023