Indopoly (IPOL) Recorded Positive Performance in 2010: Net Profit Increased by 82%

Jakarta, Indonesia, March 30, 2011 – 

PT Indopoly Swakarsa Industry Tbk. (the Company), one of the leading manufacturer of flexible packaging film in Indonesia with ticker symbol IPOL, has issued its 2010 audited financial statements and reported an increase in net sales in 2010 by 32% to IDR1,625 billion from IDR1,230 billion in 2009, while gross profit in 2010 reached IDR440 billion representing 65% increase from 2009 gross profit of IDR266 billion. In addition, the Company reported operating profit and net profit of IDR 278 billion and IDR 170 billion respectively, an increase of 160% and 82% respectively, from prior year.

The significant rise in sales and gross profit in 2010 were due to a combination of several positive factors:

(a) full year sales from second BOPP line that has been completed and has started operating since July

2009;
(b) better product mix; and
(c) improved production efficiency. Year-on-year gross margin rate rose by 5%, from 22% in 2009 to 27% in 2010. Increase in operating income is supported by management’s ability to maintain steady level of expenses leading the Company’s operating margin and net profit margin to more than 17% and 10%, respectively.

Moreover, the Company would like to report the progress of its expansion projects in its factories in

Indonesia and China as follows:

1. The extrusion coating unit for thermal lamination film in Suzhou China, with annual capacity of 5,700 tonnes, has been installed and is expected to be ready for commissioning in April 2011. This new investment supports the Company’s commitment for producing green products which is in line with the world trend of low carbon economy. This widely required film does not need chemical adhesive and other substance while being laminated to paper; therefore it helps to reduce carbon foot print.

This value added product is targeted to serve customers in China, United States, and Europe where the film is used for various high-end consumer product packaging applications. The film is also used for books, magazines and a variety of printed material applications.

2. The first metalizing unit in Purwakarta Indonesia, with annual capacity of approximately 7,000 tonnes, has been commissioned in January 2011 and run at full capacity end of March 2011. The second unit of the same capacity is expected to be commissioned in September 2011. These

Indonesia 2Q11stock picks

The market started taking a little breather after last week's strong performance with all the strong data points (earnings and macro).  For now, it appears we are back to a trading environment with a dearth of news flow.

One of the steady performers remains the currency.  Currently trading at a 4 year high, further appreciation is in the cards.  Anecdotal and other evidence all points to the Central Bank's change of tack and its currency willingness to use currency strength to battle inflation.

After managing to eak out a respectable performance of +2.6% vs. -0.7% of the JCI for the 1Q stock pick, sales + research have come up with our picks for the 2Q. Looking at the list, appears to have a good balance of resources and domestic consumption plays. 

However, what is interesting to note is that out of the 14 names, 11 are either small caps or turnaround plays.  Clearly, we feel that most of the big cap blue chips ain't cheap and rising risk appetite will mean outperformance from out of favored names. 

Here is the list:

BUMI Resources (BUMI IJ)  

Most leveraged coal play financially and operationally.   Catalyst from repayment of CIC debt. Stand to save US$100m in annual interest payments (Net profit was US$311m in 2010).

Berlain Laju (BLTA IJ)  

Trading at 0.5x book value, rapidly de-leveraging balance sheet with listing of Indo business as near-term catalyst.   Both chemical tankering (80% of its revenues) and oil & gas tankering (20% of revenue) has started trending up nicely.

Delta Dunia (DOID IJ)  

2nd largest coal mining contractor with 1.5x growth of UNTR.  Balance sheet is deleveraging and new blue chip majority shareholders will bring down cost of capital.   

Energi Mega (ENRG IJ) 

Trading on EV/2P of only $1.36/boe, this is the cheapest oil and gas play in the region by far.  Balance sheet is also deleveraging as the current key assets starting to get monetized.  4Q2011 saw a huge turnaround and momentum will gain in 2012. 

Intraco Penta (INTA IJ)  

plans to double net profit through organic and inorganic growth. Coal mine injection by 3Q of US$200-300mn (2x

Total Bangun Persada : Margins powered growth

Target price: Rp380
current price : Rp 255 (31 march 2011)
Mkt.Cap: Rp870bn/US$100m


10% ahead; maintain Outperform. FY10 core profit leapt 50% yoy to Rp79bn,
10% ahead of our forecast and 13% ahead of consensus. Total appeared to have
applied more direct contracting to project owners, leading to lower revenue but this
was more than offset by higher margins. Indeed, gross and net margins were the
highest since 2008, at 12.7% and 5.2% respectively. We raise our FY11-12
earnings estimates by 1-3% to reflect higher margins and a lower tax burden, while
introducing FY13 forecasts. On the other hand, we lower our target price to Rp380
from Rp425. This is still set at a 20% discount to our market P/E target, which is
now 14x instead of 16x. We continue to see stock catalysts from contributions from
its property project in Bali and better-than-expected margins.

• Margins peaked. Revenue of Rp1.5tr was down 11% yoy, offset by higher-thanexpected
construction margins of 13.2% (1.5% above our estimate), probably
contributed by a higher portion of direct contracting. Net margins hit 5.2%, the
highest since the implementation of a 3% final tax in 2008. Tax savings (courtesy of
direct contracting) were evident from the decline in its effective tax rate from 67% in
4Q08, when the new tax rule was introduced, to 36% in 2010. Guidance is 10-15%
revenue growth to Rp1.7tr this year on Rp2.8tr order book. Order-book

Indocement (INTP IJ), In the driving seat

Nick Cashmore sees INTP as an excellent proxy for Indonesia’s urbanization, industrialization and an expanding middle class.

 

The second largest producer of cement with 18.6m tons is well positioned with US$530m of cash on hand. ROE, still superior, is coming down from 28.4% in FY09 to 26.9% in FY10, and 25.6% in FY11. The decline in ROE reflects the build up in cash. But on a ROIC basis, returns continue to improve.

 

All this will drive future price performance and remains a conviction holding. TP of Rp19k gives 19%, BUY.

 

Key points from report:

• Every 1 % swing in price affects earnings by 1.9%. With USD costs making up 70% of COGS, expected 3% rupiah appreciation = 2.4% price increase
• Greatest flexibility with capacity utilization at only 67%, with spare capacity 4.5m mt.
• 11CL assumes 4% price increase and 7% volume growth, and stable margins overall
• Has US$530m cash on hand (31% of assets), with modest immediate capex needs. With US$425m in FCF a year, dividend payout can rise from the current 35%
• Domestic demand for cement grew at 6% Cagr over 10 yrs to 40.4m mt, in line with GDP growth.

United Tractors - RIght Issue plan

Details of the Rights Issue:

 

Ratio: 4 rights for every 33 existing shares (4 for 33), in total representing 403,257,853 New Shares to raise up Rp 6,069,030,687,650 (US$696m)

Rights Price: Rp 15,050, representing 30.8% discount to the closing price of Rp21,750 on 30 March 2011. Discount to TERP is 28.4%

Standby Purchaser: Astra

Use of proceeds:

90% business expansion (including mine contracting and coal infrastructure related projects), 10% working capital

Joint Financial Advisors: CLSA and UBS

 

Timetable:

 

02 May Shareholder EGM to approve the rights issue

10 May Ex-Rights Date

12 May Record Date

16 May Commence Rights Trading Period (Rights Exercise/Subscription)