Thanks for this very detailled analysis. I am very impressed by the quality of all the details shared here.
There is no doubt IDX is quality company with dominant market share and profitability in their core region !
Cement market can be highly cyclical over the long term mainly depending on capacity addition .. but overall, this is a good business with strong local moat.
The fact that Indonesia has set a "moratorium on the construction of new cement plants ... supposed to remain in place until capacity utilization reaches 85%." is truly gamer changer for the producers. Considering the 64% capacity utilisation and the 2% increase in capacity per year, this should pave the way for 10 years with growing profitability for the producers !
This reminds me Egypt where over capacity crushed profitability from 2015-2022 .. but profitability has since recovered sharply following an production cap agreementbetween all the producers.
after reviewing, I d have some questions / observation :
1. what is the reason of the sudden share price drop in january 2025 ? anything related to local politics ?
2. What is the withholding tax on dividend in Indonesia ?
3. it is quite surprising Grobogan cement plant was constructed in 2022 while there was the moratorium. It should be the last cement plant authrorised before the restrictions ?!
4. INTP has accelerated the buyback .. which would reduce quickly the float... with a full buyout of remaining minority shareholders would be a logic endgame.
What'd be the protection on minority shareholder in Indonesia ?
Is there a specific treshold to prevent majority shareholder to force buyout ? (in some countries, this is 90% - 95%)
1) The honest answer is I don't know why the share price has fallen so sharply this year (as Howard Marks says there are no exit polls at stock exchanges), but my guess is the decline is related to the political situation/uncertainty in Indonesia. Poor fiscal decisions could lead to currency depreciation and require the central bank to raise interest rates, which would negatively affect construction activity in an environment where demand is already relatively weak and cement overcapacity already exists. This would exacerbate the price competition that is already happening in the local cement industry.
2) I believe it is ~15%, but it depends on your country of residence.
3) The Grobogan plant received a license before the moratorium was implemented, which is why it was allowed to be constructed. The moratorium is on new licenses, but it didn't change anything for licenses already issued.
4) Good question.
There are meaningful tax benefits to keeping a stub publicly traded in ID, but those benefits end when the free float falls below 40% (used to be a 5pp reduction in the corporate tax rate, but it was reduced to 3pp in 2020/2021). This change and the decline in valuation are probably both factors in INTP's recent emphasis on share repurchases. I haven't seen any note on dividends for 2025 (perhaps at the AGM), but management did announce a one-year IDR2.25t repurchase program to be voted on at the AGM later in May. If that buyback happens at the current price, the free float will easily fall well below the 40% threshold for the corporate tax benefit. Without a tax benefit, and assuming the valuation doesn't change significantly, the calculus of keeping INTP public definitely changes for Heidelberg.
Regarding minority rights in ID, I'm not an expert but here is my understanding. (Also keep in mind that with Heidelberg we're dealing with a global company based in Europe that is also publicly traded, not a local family that doesn't care about the perception of minority shareholders.)
- Every public company must keep at least 50m free float shares that together equal at least 7.5% of the total shares outstanding. Falling below this threshold puts the company on the Watchlist Board, then suspension, and ultimately a forced delisting unless the shortage is fixed. When a controller realizes the float has sunk under the 7.5 % line, the easiest fix is often to buy out what is left of the public float and take the company private.
- To delist / go-private, the company needs independent shareholder approval (majority owner is barred from voting) and to offer a voluntary tender offer or buyback for all public shares.
Thanks for this very detailled analysis. I am very impressed by the quality of all the details shared here.
There is no doubt IDX is quality company with dominant market share and profitability in their core region !
Cement market can be highly cyclical over the long term mainly depending on capacity addition .. but overall, this is a good business with strong local moat.
The fact that Indonesia has set a "moratorium on the construction of new cement plants ... supposed to remain in place until capacity utilization reaches 85%." is truly gamer changer for the producers. Considering the 64% capacity utilisation and the 2% increase in capacity per year, this should pave the way for 10 years with growing profitability for the producers !
This reminds me Egypt where over capacity crushed profitability from 2015-2022 .. but profitability has since recovered sharply following an production cap agreementbetween all the producers.
after reviewing, I d have some questions / observation :
1. what is the reason of the sudden share price drop in january 2025 ? anything related to local politics ?
2. What is the withholding tax on dividend in Indonesia ?
3. it is quite surprising Grobogan cement plant was constructed in 2022 while there was the moratorium. It should be the last cement plant authrorised before the restrictions ?!
4. INTP has accelerated the buyback .. which would reduce quickly the float... with a full buyout of remaining minority shareholders would be a logic endgame.
What'd be the protection on minority shareholder in Indonesia ?
Is there a specific treshold to prevent majority shareholder to force buyout ? (in some countries, this is 90% - 95%)
Thanks for the comments and questions!
1) The honest answer is I don't know why the share price has fallen so sharply this year (as Howard Marks says there are no exit polls at stock exchanges), but my guess is the decline is related to the political situation/uncertainty in Indonesia. Poor fiscal decisions could lead to currency depreciation and require the central bank to raise interest rates, which would negatively affect construction activity in an environment where demand is already relatively weak and cement overcapacity already exists. This would exacerbate the price competition that is already happening in the local cement industry.
2) I believe it is ~15%, but it depends on your country of residence.
3) The Grobogan plant received a license before the moratorium was implemented, which is why it was allowed to be constructed. The moratorium is on new licenses, but it didn't change anything for licenses already issued.
4) Good question.
There are meaningful tax benefits to keeping a stub publicly traded in ID, but those benefits end when the free float falls below 40% (used to be a 5pp reduction in the corporate tax rate, but it was reduced to 3pp in 2020/2021). This change and the decline in valuation are probably both factors in INTP's recent emphasis on share repurchases. I haven't seen any note on dividends for 2025 (perhaps at the AGM), but management did announce a one-year IDR2.25t repurchase program to be voted on at the AGM later in May. If that buyback happens at the current price, the free float will easily fall well below the 40% threshold for the corporate tax benefit. Without a tax benefit, and assuming the valuation doesn't change significantly, the calculus of keeping INTP public definitely changes for Heidelberg.
Regarding minority rights in ID, I'm not an expert but here is my understanding. (Also keep in mind that with Heidelberg we're dealing with a global company based in Europe that is also publicly traded, not a local family that doesn't care about the perception of minority shareholders.)
- Every public company must keep at least 50m free float shares that together equal at least 7.5% of the total shares outstanding. Falling below this threshold puts the company on the Watchlist Board, then suspension, and ultimately a forced delisting unless the shortage is fixed. When a controller realizes the float has sunk under the 7.5 % line, the easiest fix is often to buy out what is left of the public float and take the company private.
- To delist / go-private, the company needs independent shareholder approval (majority owner is barred from voting) and to offer a voluntary tender offer or buyback for all public shares.
- No statutory squeeze-outs.