Indocement Tunggal Prakarsa (INTP.IJ Rp 7,200; BUY TP Rp 8,800) Lowering FY24E/FY25E EPS est by 7%-8%; reiterate Buy on Better ASP Management

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Indocement Tunggal Prakarsa (INTP IJ)

Lowering FY24E/FY25E EPS est by 7%-8%; reiterate Buy on Better ASP Management

INTP's 1H24 NP reached 25%/26% of our/consensus estimate – a miss vs seasonality of 28%, due to rising labor and raw material cost.
Despite indicating a better Jul24 sales vol trend, mgmt. expects challenges from regional elections and fighting brand competition.
We cut our FY24E/FY25E NP by 7%/8% due to lower ASP in FY25E and higher costs. Reiterate our Buy rating with an 8% higher TP of Rp 8,800.

1H24: missed our and consensus estimates, but ASP is better than peers

INTP's 1H24 net profit of Rp435bn (-38% yoy) accounted for 25%/26% of our/consensus estimate – a miss vs seasonality of 28%. 2Q24 NP reached Rp197bn (-17% qoq/-40% yoy), dragged down by increasing raw material prices per ton (+8% yoy) and direct labor costs (+9% yoy) in 2Q24, due to rising USD, rising clay and gypsum prices, and wage adjustments. 1H24 revenue improvement was driven mostly by volume (1H24: +10% yoy, 2Q24: +13% yoy), while ASP still fell yoy (1H24: -7%, 2Q24: -4% yoy). However, we observed a 3% qoq higher ASP in 2Q24 after the May-24 hike.

INTP is cautious on 2H24, as competition could continue

Mgmt expects challenges from regional elections and competition from fighting brands such as Semen Merdeka. Based on our tracking, Semen Merdeka is currently priced at an ~18% discount to Semen Gresik, translating to a similar gap between Semen Tiga Roda and Rajawali. However, it fears sluggish volume growth could result in a wider gap between main brand and fighting brand. INTP’s fighting brand is currently at ~15% of total sales (vs ~13% in 1Q24), ~100-300bps lower than SMGR. Nevertheless, if the situation is favorable, mgmt. still expects an increase in bag prices by 1-2 times in Aug/Sep-24. Furthermore, it expects infrastructure pipeline to remain robust, with bulk segment expected to continue to grow at a faster rate (1H24 bulk/bag: +32%/+2%, inc Grobogan).

Reiterate Buy rating with a higher TP of Rp 8,800

Despite risk of competition, we note that INTP’s ASP hike in 2Q24 was healthier than SMGR. We slightly adjust our revenue by 0%/0.4% in FY24E/FY25E, as we cut our ASP assumption by 0%/0.5% due to stronger growth in the bulk segment. Additionally, we cut our FY24-25F net profit est. by 7%/8%, as we priced in ~3% higher raw material costs per ton. We roll over our valuation to FY25E, and we reiterate our Buy rating with a 5% higher TP of Rp8,800. INTP currently trades at an EV/t of USD94, -1 std dev of the 5-years mean. Downside risks: 1) Sluggish vol, leading to price wars; 2) Entry of new players.

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