ITMG Strives to Manage High Stripping Ratio 20180307 NHKS Company Report (English)

• 6.2% vs. Last Price +8.5%

  Reuters

  12M Abs. Ret. 38.5% -3.1% 35.7% 59.7% Rel. Ret. 35.0% -2.4% 26.0% 38.0%

  3M

  1M

  Share Price Performance YTD

  9.6% 15.0% 14.6% 15.3% ROE 15.0% 27.1% 29.2% 31.6% ROA 10.9% 19.7% 20.1% 20.6% ROIC 16.3% 29.1% 30.2% 33.2% P/E 11.0x 9.6x 8.7x 7.9x P/BV 1.6x 2.5x 2.5x 2.5x EV/EBITDA 3.6x 4.4x 4.6x 4.1x DPS (IDR) 1,536 3,023 3,025 3,336 Dividend yield 9.1% 10.5% 10.5% 11.6% Source: Company Data, Bloomberg, NHKS Research

  22.6% 27.4% 24.0% 25.1% NPM

  EPS growth 111.1% 95.0% 10.4% 9.7% BVPS (IDR) 10,874 11,522 11,252 11,681 EBITDA margin

  EBITDA 309 463 459 503 Net profit 131 253 279 306 EPS (IDR) 1,536 2,995 3,305 3,627

  Sales growth

  2016/12A 2017/12A 2018/12E 2019/12E Sales 1,367 1,690 1,910 2,003

  yuni@nhsec.co.id Indo Tambang Raya Megah Tbk | Summary (USD mn)

  ITMG.JK Yuni

  36.68 Foreign Ownership 99.9% Mining Coal Bloomberg

  1.38 Avg. Trd Val - 3M (bn)

  34.8 Outstanding sh.(mn) 1,130 Market Cap (IDR bn) 29,491 Market Cap (USD mn) 2,141 Avg. Trd Vol - 3M (mn)

  Shares data Last Price (IDR) 28,675 Price date as of Mar 02, 2018 52 wk range (Hi/Lo) 31,700 / 14,850 Free float (%)

  Hold Dec 2018 TP (IDR) 31,125 Consensus Price (IDR) 33,170 TP to Consensus Price

  The recommendation uses the assumption of forward P/E of 8.6x (2SD higher than the one-year average of 5.5x) as the basis for valuation method. The target price implies a 2018E P/E of 9.4x (vs a 2018E P/E of 8.7x at the present time)

  Target Price IDR31,125 We recommend buy with the target price of IDR31,125 for December 2018.

  4Q16), and ITMG’s other mining, namely Bharinto posted SR of 12.4x (vs 5.7x in 4Q16).

  The high stripping ratio (SR) heightened the mining cost. In 4Q17, Indominco Mandiri (IM), one of ITMG mining posted SR of 13.3x (vs 6.9x in

  The incline in COGS was dominated by the increment of 44.9% y-y from USD116 million in 4Q16 into USD168 million in 4Q17 in the mining cost.

  High Stripping Ratio: Potent Driver for Upbeat COGS COGS picked up by 35.0% y-y from USD272 million in 4Q16 into USD367 million in 4Q17. The incline in COGS occurred amid the decline in sales volume from 6.7 million ton in 4Q16 into 6.6 million ton in 4Q17.

  We estimate that in 2018, ASP is capable of hiking slightly into USD76.5 per ton due to the long-term stability in the global coal prices.

ITMG IJ

• 62 21 797 6202, ext:164
• - 14.0% 23.5% 13.1% 4.9%

  Please consider the rating criteria & important disclaimer Company Report | March 07, 2018 Indo Tambang Raya Megah Tbk (ITMG) Strives to Manage High Stripping Ratio Room for Potential Hike in ASP In 4Q17, ITMG posted the sales of USD526 million (+28.5% y-y) coupled with the hike of 30.5% into USD79.7 per ton in ASP. The hike in ASP aligned with the high prices of global coal. The annual ASP was USD73.1 per ton.

  Deeper Mining Activity Indominco Mandiri (IM) is ITMG’s biggest mining. In 4Q17, IM contributed 54.2% from the total production, and posted SR of 13.3x higher than 4Q16’s SR of 6.9x. In 2018,

  ITMG projected the hike in SR of its mining, for instance, the projection of hike of 14.5x in 1Q18’s SR of IM mining. Other than the projection of hike in SR of IM mining, ITMG also has projected the hike in

  1Q18’s SR of its respective mining, such as the hike of 13.3x in SR of Trubaindo (vs 9.4x in

  4Q17); 12.5x in SR of Kitadin Embalut (vs 10,4x in 4Q17); 6.5x in SR of Jorong (vs 5,4x in 4Q17), and 9.3x in SR of Bharinto (vs 12,4x in 4Q17). The high stripping ration will heighten the mining cost, for instance, in 4Q17, ITMG posted the hike of 44.9% y-y into USD168 million in the mining cost. As of note, the mining cost with the portion of 45% is the biggest component of ITMG’s COGS.

  A Glance at ITMG Indotambangraya Megah (ITMG) as the subsidiary of Banpu Inc. Thailand is one of big scaled coal miners in Indonesia as it focuses its mining concession in Kalimantan Island and has the average production capacity of 22-29 million ton per year. Its biggest sales portion is export to Japan, China, and India, while its domestic sales portion is only at the average of 10%-12% from the total sales.

  Producing high-calories coal is one of ITMG’ best qualities. Most of its coal products were exported to Japan because the cutting edge power plant technology in Japan uses only the high-calories coal.

  Performance Highlights Mining Cost (USD mn) | 1Q16— 4Q17 Indominco Mandiri’s Stripping Ratio | 1Q16— 1Q18E

  Source: Company, NHKS research Source: Company, NHKS research ASP (USD/ton) | 1Q16— 4Q17 Production & Sales Volume (mn ton) | 1Q16 - 4Q17 Source: Company, NHKS research Source: Company, NHKS research

  Sales Destination | 4Q17 Domestic Sales Portion | 1Q16 - 4Q17 Source: Company, NHKS research Source: Company, NHKS research

  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 12/15/2017 Buy 25,275 20,450 24,927 +23.6% +1.4% 03/07/2018 Hold 31,125 28,675 33,170 +8.5% 6.2%

• Source: NHKS research, Bloomberg

  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 : Greater than +15%  Buy : -15% to +15%  Hold : Less than -15%  Sell

  Summary of Financials

DISCLAIMER

  Sprea d (FROE-COE) (%) 5.8% 19.1% 21.6% 24.8% Res i dua l Income (USD mn) 48 173 207 235

  49

  62 NOPAT 142 271 288 321 Chg. In Worki ng Ca pi ta l (42) (9) 95 (6) +Depr./Amor.

  57

  75

  49

  62 CFO 145 319 423 362 -CAPEX (23) (52) (96) (76) Ca pex (23) (52) (96) (76) -Incr. (Decr.) i n Worki ng Ca p. (42) (9) 95 (6)

  

CFI (25) (74) (180) (62) (Unl evered) FCFF 133 286 337 301

  Di vi dends Pa i d (42) (199) (291) (270) WACC Net Borrowi ng (PMT) - - - - Cos t of Debt (Ta x Adj.) 0.0% 0.0% 0.0% 6.5%

  CFF

  (60) (198) (291) (270) Cos t of Equi ty (COE) 9.9% 8.8% 7.5% 7.5%

  Net Changes in Cash

  60 46 (48)

  30 WACC (%) 9.9% 8.8% 7.5% 7.5%

  RIM

  By Geography % Shareholders % Equi ty Cha rge

  57

  82

  80

  72

  71 Si nga pore

  86.3 Ba npu Mi nera l s

  65.1 EVA Uni ted Sta tes

  8.4 Va ngua rd

  1.3 Inves ted Ca pi ta l (USD mn) 835 907 958 949 Luxembourg

  2.0 Di mens i ona l Fund

  1.1 ROIC-WACC (%) 7.1% 21.1% 22.6% 26.4% Bri ta i n

  1.1 Gra ntha m Ma yo

  1.0 EVA (USD mn) 60 191 217 250

  OWNERSHIP

  INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT Analyst: Yuni PROFITABILITY & STABILITY

  75

  Net Income 131 252 279 306 DCF (USD mn) Deprec & Amorti za ti on

  

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  25.4

  ITMG Summary Last Price (IDR) 28,675

Target Price (IDR) 31,125 2016/12A 2017/12A 2018/12E 2019/12E

Hold ROE 15.0% 27.1% 29.2% 31.6%

  ROA 10.9% 19.7% 20.1% 20.6% ROIC 16.3% 29.1% 30.2% 33.2% EBITDA/Equi ty 35.5% 49.7% 48.2% 52.0%

  

In USD mn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 25.9% 36.1% 33.1% 34.0%

Sales 1,367 1,690 1,910 2,003 Ca s h Di vi dend (USD mn) 131 255 255 281

Growth (% y/y) -14.0% 23.5% 13.1% 4.9% Di vi dend Yi el d (%) 9.1% 10.5% 10.5% 11.6%

COGS (1,037) (1,184) (1,368) (1,423) Pa yout Ra ti o (%) 99.8% 100.9% 91.5% 92.0%

Gross Profit 331 505 542 580 DER 0.0% 0.0% 0.0% 0.0%

Gross Margin 24.2% 29.9% 28.4% 29.0% Net Gea ri ng 0.0% 0.0% 0.0% 0.0%

  Opera ti ng Expens es (122) (117) (133) (139) LT Debt to Equi ty 0.0% 0.0% 0.0% 0.0%

  

EBIT 209 388 410 441 Ca pi ta l i za ti on Ra ti o 0.0% 0.0% 0.0% 0.0%

EBIT Margin 15.3% 23.0% 21.4% 22.0% Equi ty Ra ti o 75.0% 70.5% 66.9% 63.8%

  Depreci a ti on 101

  75

  49

  62 Debt Ra ti o 0.0% 0.0% 0.0% 0.0%

  

EBITDA 309 463 459 503 Fi na nci a l Levera ge 137.1% 137.7% 145.6% 153.2%

EBITDA Margin 22.6% 27.4% 24.0% 25.1% Current Ra ti o 225.7% 243.4% 190.7% 180.9%

  Interes t Expens es (1) (1) (1) (1) Qui ck Ra ti o 189.8% 167.5% 135.1% 121.8%

  

EBT 192 363 396 420 Ca s h Ra ti o 137.4% 113.6% 90.1% 79.1%

  Income Ta x (9) (6) (8) (8)

  Cash Conversion Cycle

  20.8

  

Total Liabilities 302 401 472 563 Sa l es PS (IDR) 16,092 20,025 22,655 23,756

Shareholders' Equity 907 958 949 985 DPS (IDR) 1,536 3,023 3,025 3,336

In USD mn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E

  24.2

  26.1 Mi nori ty Interes t - - - - Pa r Va l ue (IDR) 500 500 500 500

  

Net Profit 131 253 279 306 Tota l Sha res (mn) 1,130 1,130 1,130 1,130

Growth (% y/y) 107.1% 93.3% 10.3% 9.7% Sha re Pri ce (IDR) 16,875 28,675 28,675 28,675

Net Profit Margin 9.6% 15.0% 14.6% 15.3% Ma rket Ca p (IDR tn)

  19.1

  32.4

  32.4

  32.4 In USD mn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E Ca s h 328 372 324 354 Pri ce /Ea rni ngs 11.0x 9.6x 8.7x 7.9x Recei va bl es 125 176 162 191 Pri ce /Book Va l ue 1.6x 2.5x 2.5x 2.5x Inventori es 62 109 115 134 Pri ce/Sa l es 1.0x 1.4x 1.3x 1.2x

  

Total Current Assets 539 797 686 809 PE/EPS Growth 0.1x 0.1x 0.8x 0.8x

  Net Fi xed As s ets 240 239 285 298 EV/EBITDA 3.6x 4.4x 4.6x 4.1x Other Non Current As s ets 430 323 448 437 EV/EBIT 5.3x 5.3x 5.1x 4.7x

  

Total Assets 1,210 1,359 1,418 1,545 EV (IDR bn) 14,625 27,362 28,061 27,660

  Pa ya bl es 94 153 131 165 Sa l es CAGR (3-Yr) -14.4% -4.5% 6.3% 13.6% ST Debt - - - - EPS CAGR (3-Yr) -15.2% 5.4% 64.1% 32.8%

  

Other Current Liab. 145 175 228 282 Ba s i c EPS (IDR) 1,536 2,995 3,305 3,627

  LT Debt - - - - Di l uted EPS (IDR) 1,536 2,995 3,305 3,627 Other Non Current Li a b.

  64 73 113 115 BVPS (IDR) 10,874 11,522 11,252 11,681

  VALUATION INDEX DCF, RIM & EVA March 2, 2017 Dec 2018 Rating: