Indo Tambangraya Megah Tbk

  Indo Tambangraya Megah Tbk (ITMG IJ) Excellent Performance and Higher Expectancy

  Company Report | Nov 26, 2018

  3Q18 Performance: Above Estimates

  In 3Q18, ITMG posted the revenue of USD606 million (+40.8% q-q or +46.1% y-y)— higher than our estimated figure of USD578 million and the Buy

  consensus estimated figure of USD521 million. On a cumulative basis, in Dec 2019 TP (IDR) 24,225

  9M18, its revenues reached USD1,415 million or 68.4% of our full year 2018F

  Consensus Price (IDR) 32,557

  revenue estimate and 69.2% of the consensus estimate version. Meanwhile, its

  TP to Consensus Price

• 25.6% net pofits grew by 115.2% q-q or 37.8% y-y to USD96 million. Additionally, its net

  vs. Last Price

• 21.0% profit margin increased to 15.9% (vs. 10.4% in 2Q18).

  Shares data

  3Q18 Operational: Achieved Target Last Price (IDR)

  20,025 In 3Q18, ITMG posted

  the total coal production of 6.4 million tons (+23.1% q-q, Price date as of

  Nov 23, 2018 or +12.3% y-y), while its ASP surged to USD88.6 (+13.2% q-q, or +19.5% y-y)

  52 wk range (Hi/Lo)

  32,200 / 19,300 thanks to the favorable weather and the rally in coal price of 3Q18. Meanwhile,

  Free float (%)

  34.8 its stripping ratio was flat at 10.8x (vs. 10.8x in 2Q18, and 12.3x in 3Q17); its

  Outstanding sh.(mn)

  1,130 production costs climbed to USD50.2 per ton (+4.5% q-q, or +23.9% y-y).

  Market Cap (IDR bn)

  22,711

  Market Cap (USD mn)

  1,559

  Maintain Positive View on Sales Volume Avg. Trd Vol - 3M (mn)

  1.79 We project that the slowdown in coal prices still lingers in 4Q18 as the little

  Avg. Trd Val - 3M (bn)

  44.75 demand for coal by China. We estimate that

  

its ASP is likely to decline to

Foreign Ownership

  96.3%

  USD81.3 per ton in 4Q18 (vs. USD88.6 per ton in 3Q18). Furthermore, the

  exported coal to China is at 17.1% of the total sales (vs. 22.0% in 3Q18); the

  Mining sales volume increases by 23.0% q-q and 8.5% y-y because Indonesian

  Coal

  government urged coal producers to produce and export more coal in 4Q18 with

  Bloomberg

  ITMG IJ a view to narrowing the current account deficit (CAD).

ITMG.JK

  Reuters Cheap Valuation, Maintaining BUY Recommendation

  Our target price for ITMG is at IDR24,225, with a P/E implication of 5.1x. Its stock

  Share Price Performance

  valuations and dividend yields are more attractive than its peers, e.g. PTBA or ADRO.

  Indo Tambangraya Megah Tbk | Summary (USD mn) 2017 2018E 2019E 2020E

  Sales 1,690 2,066 2,281 2,540

  Sales growth

  23.5% 22.3% 10.4% 11.4% EBITDA 468 557 528 607 Net Profit 253 320 350 403 EPS (IDR) 3,059 4,339 4,783 5,533

  EPS growth

  93.8% 26.5% 9.2% 15.3%

  YTD

  1M

  3M

  12M

  BVPS (IDR) 11,575 13,750 14,502 15,443 Abs. Ret.

• 2.2% -21.0% -22.0% 0.1% EBITDA margin 27.7% 27.0% 23.2% 23.9% Rel. Ret.

  3.0% -24.0% -22.5% 1.1% NPM 15.0% 15.5% 15.3% 15.9% ROE 25.7% 30.9% 32.0% 35.8% ROA 17.8% 21.4% 22.1% 24.4% ROIC 28.3% 33.8% 34.8% 37.7% P/E 6.8x 4.5x 4.1x 3.5x P/BV 1.8x 1.4x 1.4x 1.3x

  Firman Hidayat

  EV/EBITDA 2.9x 2.0x 1.9x 1.9x

• 62 21 797 6202, ext:170

  DPS (IDR) 3,043 3,164 4,172 4,639

  firman@nhsec.co.id Dividend yield 14.7% 16.1% 21.3% 23.7%

  Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia

  Indo Tambangraya Megah Tbk www.nhsec.co.id

  Source: Company Data, NHKS Research Downtrend for coal price (USD/mt) in 4Q18 hit stock price

  Source: Bloomberg, NHKS Research Less rainy days is positive factor for coal production

  3Q18: Coal production by mining area Source: Company Data, NHKS Research

  3Q18 coal production (mt) increase of 23,1% q-q Source: Company Data, NHKS Research

  Performance Highlights

  3Q18: More efficiency make net profit margin (%) increase Source: Company Data, NHKS Research

  9M18: Sales volume destination by country Source: Company Data, NHKS Research

  Indo Tambangraya Megah Tbk www.nhsec.co.id

  3Q18 review (USD mn)

  3Q18

  4Q18E

  3Q17

  4Q17

  1Q18

  2Q18 Actual Estimate y-y q-q surprise

  Sales 415 526 378 431 606 578 46.1% 40.8% 4.9% 650 Gross Profit 134 159 111 115 203 173 51.2% 77.1% 17.4% 206

  Gross Margin 32.4% 30.2% 29.4% 26.6% 29.9% 1.1% 3.6% 31.7%

  33.5% 6.9%

   107 121 88 79 154 135 43.5% 95.4% 14.2% 163

  EBIT

  EBIT Margin 25.9% 23.0% 23.2% 18.3% 23.4% 2.1% 25.1%

  25.4% -0.5% 7.1% EBITDA 137 134 100 118 164 164 19.9% 38.4% -0.1% 176

  EBIT Margin 32.9% 25.5% 26.4% 27.5% 28.4% 27.1%

  27.0% -5.9% -0.5% -1.3%

  Net Profit 70 80 58 45 96 89 37.8% 115.2% 8.4% 106 Net Margin 16.9% 15.3% 15.4% 10.4% 15.4% 0.5% 16.3%

  15.9% -1.0% 5.5%

  Source: Bloomberg, NHKS research Earnings revision (USD mn) 2018E 2019E 2020E

  2,066 2,281 2,540

• Revised Sales
>Previous 1,967 2,054 2> -Change 5.0% 11.1% 12.4%

  635 665 760

• Revised Gross Profit
• Previous 585 604 725
• Change 8.6% 10.1% 4.8%
• Revised 30.8% 29.2% 29.9% Gross Margin

  29.7% 29.4% 32.1%

• Previous EBIT -Revised 484 515> -Previous 456 469
• Change 6.2% 9.9% 3.4%

  23.4% 22.6% 23.3%

  EBIT Margin -Revised

• Previous 23.2% 22.8% 25.4% EBITDA -Revised 557 528> -Previous 529 545
• Change 5.3% -3.0% 3.7%

  27.0% 23.2% 23.9%

  EBITDA Margin -Revised

• Previous 26.9% 26.5% 25.9%
>- -Previous 302 324 382
• -Change 6.0% 7.8% 5.6%

  

Net Profit Revised 320 350 403

• Revised 15.5% 15.3% 15.9% Net Margin

  15.4% 15.8% 16.9%

• Previous

  Source: NHKS research

• 24.3%

COAL INDIA

  BANPU COAL 2,537 8,251 3,378 229 2.2% 6.8% 8.9% 11.3x 1.0x

  ITMG at A Glance

  PEABODY ENERGY 3,699 8,181 5,702 753 N/A 13.2% 20.7% 6.5x 1.1x

  AMERICA

  INNER MONGOLIA 3,527 12,996 5,582 773 3.1% 13.9% 16.8% 5.4x 0.8x SHANXI LUAN 3,288 10,216 3,353 476 16.6% 14.2% 14.0% 7.3x 1.0x

  CHINA

  N/A 1.3x

  80.8%

  CAMECO COAL 4,675 6,210 1,613

  CANADA

  3,230 3,276 1,750 407 29.3% 23.3% 15.5% 8.0x 1.3x

  Australia

  THAILAND

  8.6% 31.6% 22.7x 8.0x

  22,440 19,572 12,673 1,089

  India

  ITMG IJ 1,556 1,359 1,941 280 19.9% 14.4% 28.2% 5.5x 1.5x ADRO IJ 2,855 6,814 3,486 424 -14.9% 12.1% 11.9% 6.7x 0.8x PTBA IJ 3,417 1,618 1,602 416 61.5% 25.9% 42.1% 7.9x 3.1x BUMI IJ 688 3,696 825 315 21.8% 38.2% N/A 2.2x N/A

• 43

  Source: Bloomberg Company Market Cap (USD mn) Asset (USD mn) Sales LTM (USD mn) Net Profit LTM (USD mn) Net Profit Growth LTM Net Profit Margin ROE LTM P/E LTM P/BV Indonesia

  Indonesia is the world’s fifth biggest coal producer. In 2017, it produced 461 million tons of coal and exported 364 million tons of coal. In 2018, President Joko Widodo targets the total national coal production of 535 million tons, while ITMG targets the total coal sales of 24.2 million tons. It posts the ROE of 28.2%, the net profit margin of 14.4%, and the net profit growth of 19.9%. In addition, on a valuation basis, its P/E ratio of 5.5x and P/BV of 1.5x make its stocks attractive to collect.

  ITMG’s Competitiveness in Global Coal Producers

  ITMG has 6 main subsidiaries, namely PT Indominco Mandiri, PT Trubaindo Coal Mining, PT Bharinto Ekatama, PT Jorong Barutama Greston, PT Kitadin, PT Tambang Raya Usaha Tama.

  One of its strengths is to produce high-calories coal. Most of its coal products are exported to Japan because Japan’s cutting- edge power plants only use high-calories.

  ITMG as the subsidiary of Thailand-based Banpu Inc., is one of the biggest Indonesia-based mining companies, with the mining concession, situated in South Kalimantan, Central Kalimantan, and East Kalimantan and the average production capacities of 22- 29 million ton per year. Its biggest exports markets are Japan, China, and India, while its domestic sales are only at the average of 10%-12% of the total sales.

  Global Coal Companies

  Indo Tambangraya Megah Tbk www.nhsec.co.id

WHITEHAVEN COAL

• 2.7% -1.1%

  Indo Tambangraya Megah Tbk www.nhsec.co.id

  Multiple Valuation Forward P/E band | Last 1 year Dynamic Forward P/E band | Last 1 year Source: NHKS research Source: NHKS research Rating and Target Price Update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  11/26/2018 Buy 24,225 (Dec 2019) 20,025 32,557 +21.0% -25.6%

  Source: Bloomberg, NHKS research Analyst Coverage Rating Closing and Target Price Source: Bloomberg

  Source: NHKS research 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%  Sell : Less than -15%

  Indo Tambangraya Megah Tbk www.nhsec.co.id

  Summary of Financials

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