On the back of the higher HRC price Spindo's net profit is estimated to grow by 100 percent (y/y) to IDR 316 billion (approx. USD $24 million) in 2016, while its net profit is estimated to rise from IDR 3.58 trillion to IDR 1.99 trillion over the same period. Given the company's production costs are relatively low due to the buying of HRC at the right timing, Spindo can offer its steel pipes and tubes at lower prices compared to those prices offered by competitors, hence Spindo's market share should rise accordingly. Up to March 2016, the company controlled a 30 percent market share in Indonesia.

Price pressures on steel mostly originate from China where domestic steel demand suddenly collapsed due the the nation's economic slowdown (particularly in the construction sector), while China's steel production capacity had risen steeply in recent years. As a result China began to dump steel on the global market. However, recently China vowed to cut back on steel production capacity, a message that led to higher steel prices.

Investa Saran Mandiri has revised upward the share price target of Spindo from IDR 266 per share to IDR 637 a piece. So far this year, the company's shares have soared a whopping 30.85 percent to IDR 246 a piece.

Stock Quote Steel Pipe Industry of Indonesia - ISSP:

Spindo's steel products are used in several sectors including infrastructure, utilities, oil & gas, furniture, and the automotive industry. Of these industries only infrastructure stands out as a good opportunity given the Indonesian government is committed to push for infrastructure development across the archipelago. Previously, Fitch Ratings said the Indonesian steel sector depends heavily on government-led infrastructure development in Indonesia.

Spindo plans to issue bonds this year worth 300 - 500 billion, proceeds of which are to be used for capital expenditure and working capital. The company plans to construct three new warehouses in Bitung, Medan and Ambon (this will improve logistics-related matters for the company), purchase new equipment as well as land in Gresik (East Java).

Future Forecast Steel Pipe Industry of Indonesia's Financial Highlights:

     2014    2015    2016F    2017F
Net Sales    3,368    3,583    3,990    4,320
Gross Profit     564     772    1,017     870
Net Income     214     158     316     254
ROE (%)
    9.2    10.7    11.2    12.9
ROA (%)     3.9     4.1     3.7     4.3

in billion IDR rupiah unless otherwise stated
¹ in IDR rupiah
Source: Investa Saran Mandiri (16/06/2016)