Holcim Indonesia upgraded to ’buy’; target price raised by 166 per cent

Holcim Indonesia upgraded to ’buy’; target price raised by 166 per cent
Published: 04 December 2007

PT Holcim Indonesia has been upgraded to a "buy" from "hold", with the stock’s target price raised by 166 per cent as the Indonesian cement company is likely to reap bigger-than-expected profits this year, Trimegah Securities said.

Holcim Indonesia, the third biggest cement maker in the country, is 77.3 per cent owned by Switzerland’s Holcim.

Trimegah said it has raised its target price for the stock to 2,100 rupiah from 790 rupiah. As of 3:00 pm, the stock was up 30 rupiah or 1.8 per cent at 1,660 rupiah. So far this year the stock has gained 148 per cent.

"This year has been a good year for Holcim Indonesia as earnings are likely to surpass our expectations," Trimegah analyst Stanley Tjiandra said in a note to clients.

The brokerage upgraded its 2007 sales estimate for Holcim Indonesia by 9.7 per cent to 3.7trn rupiah, with net profit seen rising to 254.0bn rupiah.

For 2008, the sales forecast has been raised by 4.2 per cent to 4.3trn rupiah while net profit forecast has been revised upward by 129.1 per cent to 359.7bn rupiah.

The earnings upgrade was triggered by better-than-expected nine months results.
Trimegah said Holcim Indonesia’s nine-month sales represented 79.9 per cent of its previous full-year sales estimate of 3.4trn rupiah.

The nine-month net profit of 153.11bn rupiah, meanwhile, has exceeded its previous full-year net profit estimate of 26.6bn rupiah.

"We are upbeat with what the company has achieved," Tjiandra said.
He said the better-than-expected results are attributable to cost efficiencies and a sales strategy that focuses on the high-margin domestic retail market.

"From our observations, retail prices are approximately 20 per cent higher than bulk purchase prices," he said.

On cost efficiencies, Trimegah said based on the nine-month results, the cost of goods sold per kilogram has declined 10.4 per cent YoY to 355 rupiah/kg largely due to a 10.9 per cent YoYdrop in fuel and energy costs.

A major step in the company’s cost reduction efforts was seen through the closure of its old kiln facility in Cilacap I last year.

The diesel-fueled Cilacap I facility was considered uneconomical to operate due to high diesel fuel price.
Trimegah said improvement was also seen in distribution expense. This account, which represents approximately 45.8 per cent of the company’s nine-month operating expense, fell 4.9 per cent YoY.

Major restructuring in the company’s distribution system started when it divested its transportation subsidiary company, PT Wahana Transtama, in the second half of 2006 and transferred all of its road deliveries through third party haulage contractors.