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On Wednesday, JPMorgan upgraded shares of Indocement Tunggal Prakarsa Tbk PT (INTP:IJ) (OTC: PITPF) from Neutral to Overweight, while lowering the price target to IDR6,100.00 from IDR7,350.00. The upgrade followed Indocement’s successful cost optimization efforts in the second half of 2024, particularly from synergies realized after its acquisition of Grobogan in the fourth quarter of 2023.
The JPMorgan analyst noted that there is potential for further cost savings as the Grobogan plant increases its use of alternative fuels and materials. Despite Indocement’s stock underperforming the Jakarta Composite Index (JCI) by 23% year-to-date, the analyst suggested that the market has already factored in risks related to volumes. Projections for Indocement’s future include a stable top line in 2025 with a supportive 9% growth in core earnings.
The analyst’s forecast indicates an approximate 5% return on invested capital (ROIC) for Indocement, which is about 60% below the cost of capital, estimated at 13%. The current trading price of Indocement’s stock represents roughly an 80% discount to its replacement cost, which, according to JPMorgan, points to an overly negative market sentiment regarding the company’s profitability outlook.
Indocement’s financial position is characterized by a 13% free cash flow (FCF) yield on a net cash balance sheet. The analyst also highlighted that the consensus on dividend expectations at a 30% payout may be too conservative. With Indocement historically distributing an average payout of over 100% between 2017 and 2022, the upcoming Annual General Meeting (AGM) in May 2025 could serve as a catalyst for a re-rating of the stock. JPMorgan anticipates a potential 60% payout at the AGM.
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