PT Indah Kiat Pulp & Paper Tbk (INKP) is undergoing a significant transformation to reduce the company's reliance on global pulp price volatility. The USD3 billion new plant project in Karawang is projected to be a turning point for the issuer's business profile, shifting its primary focus from commodities to high-value-added packaging products.
An analyst from Mirae Asset Sekuritas, Wilbert Arifin, revealed that the Karawang plant is designed to produce packaging with margins far superior to the operational unit in Serang. With white packaging products comprising 77 percent of the mix, the company is expected to generate a gross margin of up to 23 percent, supported by internal raw material efficiency and solid supply chain integration.
A shift in revenue structure is predicted to occur by 2028, with the packaging business sector expected to contribute nearly half of INKP's total revenue. This achievement will also mark a milestone for the company as, for the first time, the packaging business will surpass the combined revenue of the pulp and graphic paper segments.
Amid tight competition in the global pulp industry, INKP maintains a competitive advantage through an efficient production cost structure, with a low cash cost of around USD250 per ton. This efficiency is supported by a 54 percent usage of renewable energy as well as access to domestic coal prices through the Domestic Market Obligation (DMO) scheme.
As the massive capital expenditure cycle for the Karawang project ends, the company's balance sheet is projected to become healthier. Free cash flow is expected to return to a positive position by 2027, which will later provide management with more room to strengthen dividend distributions to shareholders.
Mirae Asset Sekuritas Indonesia has set a buy recommendation for INKP shares with a target price of Rp13,500 per share. However, investors are still reminded to closely monitor global commodity price dynamics, the operational effectiveness of the new plant, and regulatory policies that could affect the company's future performance.
