Indopoly Swakarsa Industry Steady Steps

Strengthened production arm
IPOL targets to finish the installment of 20,000 tonnes new annual production capacity for new products, biaxially-oriented polyester (BOPET), in May. After commencement of the new plant, IPOL’s production capacity will increase by 25%. IPOL current annual capacity is at 80,000 tonnes for BOPP product line.

The company expects the new machine to be fully utilized in just within around one month, as they already secure certain amount of order before building BOPET plant. After commencement of new product, blended profit margin will increase. BOPET’s GPM is approximately 50%, much higher than existing product, BOPP’s GPM of 30%. In addition, starting this month, the company is also producing thermal film and providing metalizing service to increase value added which also has higher profit margin that basic BOPP.

High barrier to entry for high quality product
IPOL focus on high quality product which with 46% of sales goes to fine food packaging film segment, 40% to cigarette film, and 14% to specialty film. The positioning attracts long term customer with high requirement that usually reluctant to change their supplier once they already decided. As an example of the entry barrier, the process to become supplier of Philip Morris, currently one of IPOL clients, takes around two years.

The positioning also avoids direct competition with low end Chinese products. The high end product industry itself has high barrier to entry including high initial capital expenditures, time consuming learning curve, and around two until two and half years lag between machine’s order and receive date. IPOL products used in many high end branded consumer product which are sold in various countries such as U.S., Russia, and China.

Promising demand outlook
BOPP and BOPET world demand by volume are expected to increase by 6% CAGR in 2009-2014, based on PCI and AMI consulting data compiled by the company. In specific, the BOPP demand growth in ASEAN and China are expected to increase by 7% and 10% CAGR in 2009-2014. BOPP and BOPET projected 2009 world demand stand at around 5.6m tonnes and 2.3k tonnes annually which still provide high ample room for IPOL growth.

Indicative earnings
Based on our discussion about the Company’s 2010 performance with IPOL management, we believe that our FY10 net income projection of IDR 203 bn is deem to be achievable. The last year growth was contributed by higher volume and better product mix.