Please consider the rating criteria & important disclaimer
NH Korindo Sekuritas Indonesia
Company Report | Nov 7, 2018
Least Thrilled Smile
Adaro Energy Tbk | Summary (USD mn)
2017 2018E 2019E 2020E
Sales 3,258 3,639 3,884 4,242
Sales growth 29.1% 11.7% 6.7% 9.2%
EBITDA 1,206 1,331 1,277 1,283
Net Profit 483 439 552 628
EPS (IDR) 206 210 266 305
EPS growth 44.4% -9.2% 25.7% 13.9%
BVPS (IDR) 1,746 2,120 2,333 2,565
EBITDA margin 37.0% 36.6% 32.9% 30.3%
NPM 14.8% 12.1% 14.2% 14.8%
Dividend yield 3.2% 4.5% 4.7% 5.1%
Source: Company Data, Bloomberg, NHKS Research
YTD 1M 3M 12M
Abs. Ret. -14.8% -14.1% -18.1% -16.6%
Rel. Ret. -5.5% -11.1% -14.0% -12.2% 3Q18 Performance: Bottom Line Beaten by Non-Routine Expenses
3Q18 revenue amounted to USD1.0 billion (+24.8% q-q, +18.8% y-y), while 3Q18
net profit amounted to USD 117 million (-3.0% q-q, -21.8% y-y). On a cumulative
basis, 9M18 revenue was USD313 million, equal to 71.2% of 2018E estimate or 72.1% of consensus. The net profit was throttled by transition expenses (non
-routine operational expenses) of USD77.7 million spending on the acquisition of Kestrel mine owned by Rio Tinto.
3Q18 Operational Review: Bountiful Production
3Q18 dry season positively correlated with ADRO’s total coal production of 14.9 million tons (+13.8% q-q, 4.8% y-y). On a cumulative basis, 9M18 total production
was 38.9 million tons, hitting 69.4% of its production target of full-year 2018.
Meanwhile, 3Q18 stripping ratio was 5.4x (vs 4.9x in 2Q18 and 5.0x in 3Q17). 3Q18 total sales volume was 15.4 million tons, consisting of 11.4 million tons of export sales and 4.0 million tons of domestic sales.
4Q18 Coal Prices Prospect: Expecting Repeat History
We oversee 8 recent-year histories: cold season in 4Q was the peak season of the
rally in global coal prices. The history was on the back of several kinds of classical factors: 1) Supply deficit due to decelerated production; 2) High demand for fuels by power plants due to high electricity consumption for room heaters in Asia and European countries; 3) Decline in electricity supplies from hydropower plants (PLTA) and gas power plants (PLTG) due to frozen waterfalls and global natural gas prices reigning in a bullish territory. We are sanguine about global coal prices maintainable at above USD90/ton in full-year 2018F.
Attractive Valuation, Maintaining BUY Recommendation
We are sanguine about higher average selling prices (ASP) to remain to be ADRO’s key performance along with coal prices reining in the bullish territory. We set the target price of IDR1,970 with a P/E of 7.4x. Risks arising from our target are 1) Lower global coal prices, 2) Higher production prices.
TP to Consensus Price -20.3% vs. Last Price +24.3%
Shares data
Last Price (IDR) 1,575
Price date as of Nov 5, 2018 52 wk range (Hi/Lo) 2,650 / 1,565
Source: Company Data, NHKS Research
Every 4Q is peak season for coal price (USD/Mt)
Source: Bloomberg, NHKS Research
Less rainy days is positive factor for coal production
Revenue breakdown in 9M18
Source: Company Data, NHKS Research
3Q18 coal production (Mt) increase of 13,8% q-q
Source: Company Data, NHKS Research
Performance Highlights
3Q18: Non-recurring cost hit net profit margin
Source: Company Data, NHKS Research
OB removal (Mbcm) & stripping ratio(x) rose in 3Q18
3Q18 review (USD mn)
EBIT Margin 32.0% 27.4% 22.3% 27.1% 33.6% 27.9% 1.6% 6.6% 5.7% 25.0%
EBITDA 338 273 266 316 445 346 31.6% 40.9% 28.7% 304
EBIT Margin 38.0% 33.4% 34.8% 37.4% 42.1% 34.7% 4.1% 4.8% 7.4% 31.3%
Gross Margin -Revised 31.9% 31.1% 31.1%
-Previous 34.0% 35.4% 32.2%
EBIT -Revised 998 1,032 1,128
-Previous 974 1,120 1,150
-Change 2.4% -7.8% -2.0%
EBIT Margin -Revised 27.4% 26.6% 26.6%
-Previous 26.4% 28.5% 26.8%
EBITDA -Revised 1,331 1,277 1,283
-Previous 1,262 1,481 1,365
-Change 5.5% -13.8% -6.0%
EBITDA Margin -Revised 36.6% 32.9% 30.3%
-Previous 34.2% 37.7% 31.8%
Net Profit -Revised 439 552 628
-Previous 483 558 671
-Change -9.2% -1.1% -6.3%
Net Margin -Revised 12.1% 14.2% 14.8%
-Previous 13.1% 14.2% 15.6%
Global Coal Companies
PT Adaro Energy Tbk (ADRO) is a leading miner and the second’s biggest coal miner in Indonesia. Adaro Energy has developed
into a vertically-integrated organization, with subsidiaries focusing their businesses on mining, transportation and logistics, power.
ADRO operates the biggest coal mine in Indonesia, located in South Kalimantan and targets as the biggest mining and energy group in Southeast Asia.
Its vertically-integrated business model is robust against volatile coal prices because its non-coal mining businesses give the solid
revenue buffering volatile coal prices. The contribution of non-coal mining businesses to ADRO’s EBITDA keep soaring and
hovering around 20%.
ADRO’s Competitiveness in Global Coal Markets
Indonesia positions as the world fifth’s biggest coal producer. In 2017, Indonesia produced 461 million tons of coal and exports 364 million tons of coal. ADRO as one of the biggest coal miner targets the total production of 56 million tons in 2018. ADRO as the coal miner with the biggest asset and sales in Indonesia has high ROE and net profit margins of 11.9% and 12.1%, respectively. Its shares on a valuation basis settling at a P/E ratio of 8.2x and a P/BV of 0.9x are attractive to be collected.
Multiple Valuation
Forward P/E band | Last 1 year
Source: NHKS research
Dynamic Forward P/E band | Last 1 year
Source: NHKS research
Rating and Target Price Update
Target Price Revision
Date Rating Target Price Last Price Consensus vs Last Price vs Consensus
05/30/2018 Buy 2,500 (Dec 2019) 1,830 2,613 +36.6% -4.3%
11/7/2018 Buy 1,970 (Dec 2019) 1,585 2,471 +24.3% -20.3%
Source: Bloomberg, NHKS research
Closing and Target Price
Source: NHKS research Analyst Coverage Rating
Source: Bloomberg
NH Korindo Sekuritas Indonesia (NHKS) stock ratings
1. Period: End of year target price
2. Rating system based on a stock’s absolute return from the date of publication
Buy : Greater than +15%
Hold : -15% to +15%
Summary of Financials
DISCLAIMER
This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a selling offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtained from reliable sources, it accuracy and completeness cannot be guaranteed. PT NH Korindo Sekuritas Indonesia, its affiliated companies, respective employees, and agents disclaim any responsibility and liability for claims, proceedings, action, losses, expenses, damages, or costs filed against or suffered by any person as a result of acting pursuant to the contents hereof. Neither is PT NH Korindo Sekuritas Indonesia, its affiliated companies, employees, nor agents liable for errors, omissions, misstatements, negligence, inaccuracy arising herefrom.
