ADRO Least Thrilled Smile NHKS Company Report (English)

  (ADRO IJ) Adaro Energy Tbk Least Thrilled Smile

  Company Report | Nov 7, 2018

  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 Buy basis, 9M18 revenue was USD313 million, equal to 71.2% of 2018E estimate or

  Dec 2019 TP (IDR) 1,970 72.1% of consensus. The net profit was throttled by transition expenses (non-

  Consensus Price (IDR) 2,471 routine operational expenses) of USD77.7 million spending on the acquisition of

  TP to Consensus Price

• 20.3% Kestrel mine owned by Rio Tinto.

  vs. Last Price

• 24.3%

  3Q18 Operational Review: Bountiful Production Shares data

  3Q18 dry season positively correlated with ADRO’s total coal production of 14.9 Last Price (IDR)

  1,575

  million tons (+13.8% q-q, 4.8% y-y). On a cumulative basis, 9M18 total production Price date as of

  Nov 5, 2018 was 38.9 million tons, hitting 69.4% of its production target of full-year 2018.

  52 wk range (Hi/Lo)

  2,650 / 1,565 Meanwhile, 3Q18 stripping ratio was 5.4x (vs 4.9x in 2Q18 and 5.0x in 3Q17).

  Free float (%)

  43.6

  3Q18 total sales volume was 15.4 million tons, consisting of 11.4 million tons of Outstanding sh.(mn) export sales and 4.0 million tons of domestic sales.

  31,986

  Market Cap (IDR bn)

  51,497

  4Q18 Coal Prices Prospect: Expecting Repeat History Market Cap (USD mn)

  3,450

  We oversee 8 recent-year histories: cold season in 4Q was the peak season of the Avg. Trd Vol - 3M (mn)

  46.46

  rally in global coal prices. The history was on the back of several kinds of classical Avg. Trd Val - 3M (bn)

  83.53

  factors: 1) Supply deficit due to decelerated production; 2) High demand for fuels Foreign Ownership

  32.3%

  by power plants due to high electricity consumption for room heaters in Asia and European countries; 3) Decline in electricity supplies from hydropower plants Mining

  (PLTA) and gas power plants (PLTG) due to frozen waterfalls and global natural Coal gas prices reigning in a bullish territory. We are sanguine about global coal prices

  Bloomberg ADRO IJ maintainable at above USD90/ton in full-year 2018F.

ADRO.JK

  Reuters Attractive Valuation, Maintaining BUY Recommendation We are sanguine about higher average selling prices (ASP) to remain to be

  Share Price Performance 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.

  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%

  YTD

  1M

  3M

  12M

  BVPS (IDR) 1,746 2,120 2,333 2,565 Abs. Ret.

• 14.8% -14.1% -18.1% -16.6% EBITDA margin 37.0% 36.6% 32.9% 30.3% Rel. Ret.
• 5.5% -11.1% -14.0% -12.2% NPM 14.8% 12.1% 14.2% 14.8% ROE 11.3% 9.5% 10.9% 11.9% ROA 6.9% 5.8% 6.8% 7.6% ROIC 10.2% 9.5% 9.5% 10.1% P/E 9.0x 7.6x 5.9x 5.2x

  P/BV 1.1x 0.7x 0.7x 0.6x

  Firman Hidayat

  EV/EBITDA 3.7x 2.6x 2.5x 2.3x

• 62 21 797 6202, ext:170

  DPS (IDR)

  60 72 74 80

  firman@nhsec.co.id Dividend yield 3.2% 4.5% 4.7% 5.1%

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

  Adaro Energy Tbk www.nhsec.co.id

  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 Source: Company Data, NHKS Research

  Adaro Energy Tbk www.nhsec.co.id

  3Q18 review (USD mn)

  3Q18

  4Q18E

  3Q17

  4Q17

  1Q18

  2Q18 Actual Estimate y-y q-q surprise

  Sales 890 819 764 846 1,057 997 18.8% 24.8% 6.0% 972

  9.5% 282

  Gross Profit 327 282 226 266 387 353 18.3% 45.5%

  Gross Margin 36.7% 34.4% 29.6% 31.4% 35.4% -0.1% 1.2% 29.0%

  36.6% 5.2%

   285 225 170 229 355 278 24.7% 55.1% 27.8%

  EBIT

  EBIT Margin 32.0% 27.4% 22.3% 27.1% 27.9% 1.6% 5.7% 25.0%

  33.6% 6.6% EBITDA 338 273 266 316 445 346 31.6% 40.9% 28.7% 304

  EBIT Margin 38.0% 33.4% 34.8% 37.4% 34.7% 4.1% 7.4% 31.3%

  42.1% 4.8%

  

Net Profit 150 111 74 121 117 167 -21.8% 3.0% -29.7% 126

• - Net Margin 16.9% 13.5% 9.7% 14.3% 16.8% 13.0%

  11.1% -5.8% -3.2% -5.6%

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

  3,639 3,884 4,242

• Revised Sales
>Previous 3,690 3,932 4> -Change -1.4% -1.2% -1.2%

  1,160 1,206 1,317

• Revised Gross Profit
• Previous 1,254 1,392 1,385
• Change -7.5% -13.3% -4.9%
• Revised 31.9% 31.1% 31.1% Gross Margin

  34.0% 35.4% 32.2%

• Previous EBIT -Revised 998 1,032 1> -Previous 974 1,120 1
• Change 2.4% -7.8% -2.0%

  27.4% 26.6% 26.6%

  EBIT Margin -Revised

• Previous 26.4% 28.5% 26.8% EBITDA -Revised 1,331 1,277 1> -Previous 1,262 1,481 1
• Change 5.5% -13.8% -6.0%

  36.6% 32.9% 30.3%

  EBITDA Margin -Revised

• Previous 34.2% 37.7% 31.8%
>- -Previous 483 558 671
• -Change -9.2% -1.1% -6.3%

  

Net Profit Revised 439 552 628

• Revised 12.1% 14.2% 14.8% Net Margin

  13.1% 14.2% 15.6%

• Previous

  Source: NHKS research

• 24.3%

  THAILAND

  PEABODY ENERGY 3,990 8,181 5,702 753 N/A 13.2% 20.7% 7.0x 1.2x

  AMERICA

  INNER MONGOLIA 3,465 12,996 5,582 773 3.1% 13.9% 17.2% 5.2x 0.8x SHANXI LUAN 3,494 10,216 3,353 476 16.6% 14.2% 14.0% 7.8x 1.0x

  CHINA

  CAMECO COAL 4,788 6,210 1,613 -43 80.8% -2.7% -1.1% N/A 1.3x

  CANADA

  WHITEHAVEN COAL 3,673 3,276 1,750 407 29.3% 23.3% 15.5% 9.2x 1.5x

  Australia

  BANPU COAL 2,772 8,251 3,128 213 31.1% 6.8% 8.3% 13.2x 1.1x

  8.6% 31.6% 23.4x 8.3x

  Adaro Energy Tbk www.nhsec.co.id

  COAL INDIA 22,488 19,572 12,673 1,089

  India

  ITMG 1,828 1,359 1,750 250 25.4% 14.3% 27.6% 7.2x 2.0x PTBA 3,450 1,618 1,544 398 79.2% 25.8% 42.8% 8.7x 3.5x BUMI 733 3,696 825 315 21.9% 38.2% N/A 2.3x N/A

  ADRO 3,450 6,814 3,486 424 -14.9% 12.1% 11.9% 8.2x 0.9x

  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 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.

  ADRO’s Competitiveness in Global Coal Markets

  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%.

  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.

  Global Coal Companies

  ADRO at A Glance

  Adaro Energy 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

• 4.3% 05/30/2018 Buy 2,500 (Dec 2019) 1,830 2,613 +36.6%

  11/7/2018 Buy 1,970 (Dec 2019) 1,585 2,471 +24.3% -20.3%

  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%

  Adaro Energy Tbk www.nhsec.co.id

  Summary of Financials

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