Company Update

04 Desember 2019

INOV 9M19 - MNC Sekuritas Equity Report

PT Inocycle Technology Group Tbk (INOV)

Recycled Polyester Staple Fiber (“Re-PSF”) Producer


Recycling Trash into Treasure


The Largest Hollow Conjugated Re-PSF Producer in Indonesia

PT Inocycle Technology Group (INOV) is considered as the largest Hollow Conjugated Polyester Staple Fiber producer in Indonesia that has a market share of more than 40%. The company is engaged in the production of Recycle Polyester Staple Fiber (Re-PSF) by purchasing waste PET bottles as a source of their main raw material and directly produce it into bottle flakes used as raw material of Re-PSF. Inocycle is utilizing PT Hilon Indonesia’s domestic sales network to distribute its Re-PSF, hence the stable sales growth is achieved. The Re-PSF demand in the future is believed to keep on increasing due to the incline in vehicle productions, infrastructure development and clothing production. Inocycle will be on the advantage because it has the greatest potential to absorb all of the increase in demand with its production capacity and its ability to handle large scale production.


9M19 Performance: Bottom Line soared up by 425% YoY!

Revenue inclined by 28% YoY to IDR380 billion in 9M19 (vs IDR298 trillion in 9M18). Sales growth is driven by the 36% YoY incline in fiber sales as it contributed 78.13% YoY towards the total sales in 9M19 reaching IDR301 billion, followed by the Non-Woven growth of 12% YoY to IDR59 billion and others which also grew by 477% YoY. Meanwhile, the operating profit grew by 109% YoY to IDR48 billion in 9M19 with the margin at 13%. The bottom line significantly surged up by 425% YoY to IDR24 billion in 9M19 (vs IDR5 billion in 9M18) with the Net Profit margin at the level of 6%.


PlasticPay: Turns your Trash into Cash!

INOV has just launched a new app called PlasticPay, which is a block chain system where people will get rewards from bringing plastic bottles to collection point. The purchase price of waste PET bottles has risen from IDR5,000 per Kg in early 2013 to an average of IDR7,000 per Kg. So the intention with PlasticPay is to gather raw materials from the masses based on the weight of the bottles, rather than buying them for a higher price from a third party. PlasticPay is being tested on several convenience store, as one of the collection point. The rewards collected from the app can be monetized or used by the user as cash to shop at the convenience store.


Valuation and Recommendation: NOT RATED

INOVs shares grew by 0.52% YTD with current PE at 22x and PBV at 2.11x. We believe that the increase in Re-PSF demand that is supported by the company's strategy which is focusing on supply chain, with the following strategies: 1) Securing Bottle Supplies: becoming more efficient and affordable in collecting raw materials; 2) Building factories in small cities where the bottle collection is not yet monopolized; 3) Building a new Fiber Plant in Medan; 4) Efficiently utilizing the machines; 5) Taking over a plant in Makassar to become a washing factory in the upcoming years will potentially increase Company’s performance.




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