by Credit Suisse
Sales commentary: ADRO is the most expensive coal company in our coverage universe, which trades at 2011/12 PE of 18.4x/12.2x. The premium valuation, in our view, justified amid ADRO’s good corporate governance, strong management execution and 56% earnings CAGR in 2011-13. Unfortunately, coal price trend and demand are rather weak at this time. We would be buying ADRO in September ahead of the winter stocking.
ADRO 1H11 net profit came-in at US$268 mn (+47.2% QoQ), which is in-line with consensus 2011 forecast (50%) but ahead of ours (56%).
ADRO’s strong results are supported by higher sales volume (24 mn tons, +20% QoQ, 51% of our 2011 forecast) and higher ASP (US$71.2/ton, +13% QoQ, 102% of our 2011 assumption).
Analyst Fonny Surya expects ADRO to book stronger production and higher ASP in 2H11. For 2011, ADRO targets 2011 coal production of 46-48 mn, while 2H11 ASP negotiations will be benchmark to Japan’s 2Q11 pricing of US$130/ton.
Fonny’s concern on ADRO is on non-operational risks (regulatory changes on pricing and volatility in fuel prices). Pending earnings model reviews, Fonny maintains her Underperform rating on the stock.