Tuesday, August 16, 2011

Indo Tambangraya Megah: Key takeaways from analyst meeting

by Mandiri Securities

ITMG only sold 5.2Mt coal in 2Q11, or 5% lower than 1Q11 and 10% lower than its coal production of 5.8Mt mainly due to unexpected jump of production volume in late 2Q11, so there were some delays on shipment. Company reiterated that modest growth in 2Q11 due to wet weather which hampered some of their mining activities in several area.

ITMG highlighted that 3Q11 production volume would increase by 15-20% growth on average monthly basis. By mid August 2011, Indominco has produced 2Mt coal vs internal target of 4.3Mt which 26.5% increase vs 2Q11.

Other mine’s coal production were relatively inline internal target, except Jorong that has achieved 0.7Mt coal or 70% of its FY11 target. ITMG still confident with its FY11 target of 25Mt.Td. Mayang and Bharinto blocks will commence production in 3Q11 and 4Q11 with each target of 0.5Mt and 0.2Mt respectively.

2Q11’s ASP increased by 12%qoq to US$97.4/ton faster than its production cash cost of US$45/ton, which up by 8.4%qoq mainly come from higher fuel price which already reached US$1.1/cent in 2Q11. Strip ratio was maintained around 11.3x and company also expect lower maintenance cost this year. Company guides us with FY11F ASP around US$92-94/ton and production cash cost of US$46-47/ton.

Mr. Hartono Widjaja, Marketing Director of ITMG, has highlighted that Newcastle and Indonesia’s coal FOB rate have decreased recently due to slowing down China demand following recovery on their hydropower generation and ramped up Indonesian coal output. While, Richard Bay’s coal FOB rate remain strong supported by strong demand in Atlantic region driven by higher gasoline price and some supplies contraint due to railways problem in South Africa.

We found lack of progress on its M&A plan. With net cash almost US$400mn, ITMG’s catalyst driven will remain only on its dividend payout and valuation. Currently we still have buy rating on the stock. ITMG now trades at 12.1x – 8.9x PER11F-12F.

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