by Mandiri Securities
HRUM’s 2Q11 results were lower than expectations mainly due to lower sales volume which decreased 5% qoq caused by shipment delay in 2Q11 to 3Q11. We expect HRUM will book strong improvement in 3Q11 as indicated by July’s sales volume that increased 20% from its average monthly sales. MSJ has achieved a record production of 798k tons, a significant increase of 35%-36% from its average monthly which is likely be ramped up to compensate potential delay on the TBH’s coal production of 0.5Mt in 4Q11 that is still waiting for land borrow-use permit. The company has revised down SB’s target to 2.0Mt vs 2.5Mt previously. However, supported by upbeat coal price outlook following Japanese contract repricing, we also have increased our coal benchmark price to US$120/ton onward, this will translate into higher ASP for MSJ and SB. As we roll over into 2012 valuation, our blended valuation derived higher TP at Rp14,800/share implying 14.3x adjusted PER12F and offering 51% upside potential. Maintain our Buy rating.
Slower growth in 1H11 due to some delay. HRUM posted 1H11 revenue of Rp2,986bn, (+42.6%yoy, -2.8%qoq) followed by operating profit of Rp961bn (+95%yoy, -8.7%qoq). Yearly basis, HRUM booked robust earnings growth mainly driven by ASP growth of 30.5%yoy but quarterly basis it grew slower than expectations mainly due to some sales delay as indicated by the inventory level hike of 61%yoy to US$53mn.
SB is benefiting from spot market. As most of SB’s coal is sold at spot market, SB’s ASP jumped faster at 16.4%qoq growth up to US$99.5/ton vs MSJ’s only grew by 5.1% qoq amid robust global demand. Upbeat ASP would compensate SB’s lower sales volume this year due to land acquisition issue on some part of its concession. Additional fleets to support production growth in 2012 will be mobilized in 2H11. So we maintain SB’s coal production in FY12F at 3.0Mt.
Minor earnings changes compensated by higher ASP. We lowered HRUM’s earnings in FY11F and FY12F by only 2.0 – 3.0% to Rp1,722bn and Rp2,506bn respectively mainly driven by the rupiah’s appreciation, lower sales volume (including lower trading volume) and higher fuel prices. However, upbeat coal price outlook will translate into higher ASP in forthcoming quarters as the exposure to index link and spot price remains high of 30%-40% from its FY11F total planned production.
Reiterate Buy. We still like HRUM as it still offers robust production volume and its pricing strategy amid buoyant seaborne coal demand. Furthermore, adjustment on its minority dividend accounting treatment and high quality coal assets acquisition would offer further upside potential, supported by its strong balance sheet and robust ROAE in the industry. Reiterate our Buy rating