Wednesday, May 18, 2011

Indo Tambangraya Megah Tbk

by Kresna Securities

We maintain HOLD with TP of Rp49,050. The company recorded 41.8% YoY increase in net income, expanding OPM by 2% YoY to 25.1%. In addition, the company also reported 31.1% YoY ASP increases while experiencing 26% YoY increase in cash cost, inline with our expectation. Production was slower in 1Q11, decreased by 14.8% YoY to 5.2mt. However, we maintain our production forecast as we believe additional mining equipments will catch up the production in the next following quarters. Now, the counter is trading at FY11 P/E of 13.0x.

· Revenue increase despite weakening production. 1Q11 top line increased by 16.2% YoY to US$468m mainly driven by 31.1% increase in ASP. ASP of Indominco, Trubaindo, Embalut, and Jorong altogether improved to US$87.3/ton, from US$66.6/ton in 1Q10. Production volume, however, dropped by 14.8% YoY to 5.2mt. La Nina remained a challenge especially in Indominco. Compared to the company’s
quarterly target, the 1Q11 production was 5.5% lower than the company’s target and accounted for 20.8% of the company’s FY11 target.

· Higher cash cost incurred. Cash cost jumped by 26%YoY to US$41.5/ton despite declining blended strip ratio to 11.5x from 13.1x last year. The rise cash cost was attributable to higher mining tariff fee which increased by around 8%YoY as well as higher oil & gas price. Mining cost increased 10.8% YoY to US$150m while production volume slumping by 14.8% YoY.

· Margin improved; no surprise on the other income. The higher ASP has caused operating margin to expand to 25.1% from 23.2% in 1Q11. Meanwhile, there was no significant changes at the other income account which could affect its bottom line. Bear in mind that ITMG recorded US$9.5m gain on derivative transaction in 1Q11 versus US$38.3m loss in the previous quarter.

· Expect higher volume onward. ITMG aims to recoup the 1Q11 missing volume delivery in the upcoming quarter. Additional mining contractor will support Trubaindo starting in April while extra mining equipments are expected to come to Indominco by June. Meanwhile, Embalut pre-stripping activity progress was positive and so does Bharinto. ITMG expects Embalut and Bharinto to contribute 0.7mt this year. Hence, the company maintains its production volume target of 25mt this year.

· Top line : reached 22.1% from our FY11 expectation. Although accounted by only around 22.1% of or FY11 target, the result was relatively inline with our expectation considering the seasonal issue which is usually a challenging period. Yet, we retain our FY11 production volume target of 23.5mt as we anticipate stronger volume following the ramp up program in the following two quarters. In the mean time, we also retain our ASP at US$90.3/ton this year, higher than US$87.3/ton recorded in 1Q11.

· Maintain our cash cost and bottom line expectation. Although the 1Q11 cash cost was 6.6% lower than our forecast, we retain our forecast at US$44.5/ton this year. Hence, bullish oil price could lead to higher incurred cost on the following quarters. For the time being, we also retain our conservative expectation of US$444m net income, given 9.5% lower compared to the street.

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