Tuesday, April 12, 2011

PT. Tambang Batubara Bukit Asam Tbk (PTBA)

by Kim Eng Securities

􀂃 We upgrade our recommendation to BUY as we raise our target price to Rp26,974, following the better‐than‐expected contract price (Rp815k/ton) with Suralaya power plant, its single biggest customer. On the cost side, we expect a y/y increase of 6%, below the industry average.

Our View

􀂃 The new contract price of Rp815k/t for 2011 delivery, a y/y increase of 19%, exceeds our initial estimate of Rp750k/ton by 9%. The contract price for 5,000 kcal/kg GAR coal (CIF), equivalent to US$91.6/ton, is higher than our assumption of US$84/ton for exports. Another contract for 1m tons to Tarahan power plant at Rp575k/ton (~US$64.6/ton) has also surpassed our expectation.

􀂃 Our sales production estimate for FY11 is 15.75m tons, lower than the management’s bullish expectation of 16.8m tons by 9%.

􀂃 With most of the mining work carried out in‐house, involving a bucket wheel excavator that is generated by electricity, the company should not be overly affected by a higher fuel price. Therefore, we estimate a cash cost increase of only 6% y/y (vs. 10% for the sector) to US$36.9/ton. We expect its stripping ratio to stabilise at 3.5x in 2011, which should help to keep cash cost production low.

􀂃 We like Bukit Asam for its clean balance sheet and high dividend payout ratio. Its ROE of c.38% for FY11‐12 is superior compared to the industry average of c.31%.

Action and recommendation

􀂃 We upgrade our target price by 28% to Rp26,974 and recommend BUY. Currently the stock is trading at 14.2x‐11.0x FY11‐12 PER. Our target price translates into 13.5x FY12 PER and offers upside potential of 23%.

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