by Indopremier Securities
HRUM is well positioned for future growth over the next years particularly supported by robust production expansion of 46.8% CAGR in 2010-2013 and stronger ASP on the coal price rising episodes. 1Q11 average ASP was US$ 88.4/t, increase 35.7% YoY from 1Q10, leading HRUM ASP to US$ 89.3/t in 2011F, and US$ 101.1/t in 2012F. BUY Recommendation for HRUM with TP Rp 10,400 per share, 11% potential price increase.
Top Six Bituminous Coal Producers in Indonesia
With 2010 coal production of 7.4 mn tons, HRUM took a position of top six largest bituminous coal producers in Indonesia. HRUM coal mine are located in East Kalimantan and produces bituminous coal with high calorific value by 5,400-6,400 kcal/kg ADB. HRUM coal type is similar with coal produced by BUMI, BYAN, PTBA, ITMG and Straits, with export target market.
Robust production Growth, In-place infrastructure and Limited Capex
HRUM has delivered 37.6% CAGR production growth during 2007-2010, and expect to production 10.5, 14.5, and 17.5 mn tons of coal in the next three years. Currently HRUM is supported by 15 mn tons p.a. processing capacity and in progress to install the fourth crusher to meet 20 mn tons p.a. processing capacity to cover four years production expansion. Given in-place infrastructure, HRUM only allocate US$ 30 mn capex for 2011, and no major capex for next two years.
Beneficiary of Coal Price Rising
We anticipate Newcastle coal price (benchmark price) will tend to increase in years to come. Newcastle price contract for July shipment has set at US$ 126.5 per ton and expected to remain at US$ 124 per ton in 2011F, and US$ 135 in 2012F. 2Q11 HRUM expected production has been sold and priced at prevailing market price in 1Q11. HRUM also set a benefit from index-linked contract as most coal indices tend to increase, leading to superior sales growth in the coming years. We expect HRUM to deliver 71.3% YoY sales increases to Rp 7.7 tn and 111.2% net profit increase to Rp 1.7 tn in 2011.
We set our TP at Rp 10,400 per share based on 16x PE11F and 9x EV/EBITDA11F multiple methodology. Currently HRUM is traded at 14.6x PER 11F 8x and EV/EBITDA 11F