Sunday, April 17, 2011

PT. Tambang Batubara Bukit Asam Tbk (PTBA)

by Deutsche Bank

Revising 2011 and 2012 earnings forecasts on higher coal & oil price We have increased our earnings forecasts for 2011 and 2012 by 8% and 6%, respectively. This factors in adjustments to FY10 results, as well as higher DB coal price (up 13% and 4% to USD130/t and USD140/t for JFY11 and JFY12) and higher oil price (up c. 16% to USD117/bbl for both years) assumptions. We have also adjusted our currency to Rp8990 from Rp9200 previously. So far, PTBA has priced around 53% of its 2011 volumes, implying a spot exposure of 47%.

Maintain Buy rating, with TP of Rp32,100 (from Rp33,300) Our revised target price reflects the above-mentioned earnings estimate revisions, slightly offset by currency adjustments. We establish our target price by conducting a sum-of-the-parts DCF analysis; we then apply a 50% premium (unchanged), in line with our approach for the sector as a whole, to reflect the coal upcycle. Our DCF analysis assumes a WACC of 11% and a US$80/t long-term coal price benchmark. For valuation purposes, we have assigned a 50% probability to the new railway project and a 20% probability to the two IPP projects.
We reiterate our Buy rating on PTBA, which should offer among the strongest volume growth rates in the near to medium term, driven by PTKA's rail capacity increases on existing track (up to 23mT by 2015) and the new railway project with Rajawali (incremental 25mT thereafter). This should help unlock the potential of the company's vast coal reserves.

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