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Thursday, August 11, 2011

PT. Tambang Batubara Bukit Asam Tbk - Still in line; maintain OUTPERFORM

by CIMB Securities

ITMG’s earnings came in at 42% of our fullyear estimates and 43% of consensus which is generally in line with expectations. Given the recovery in production and easing cash costs in 2Q11, we are still confident that our full year earnings forecast of US$205m is achievable. We maintain our forecasts and OUTPERFORM rating with a target price of Rp60,900 implying 13.1x forward P/E. Re-rating catalysts include better-than-expected ASP and the successful execution of the Bharinto and Tandung Mayang mines.

Production picks up; sales should recover in 3Q. Despite improving production in 2Q11 to 5.8m tonnes (+17% qoq), sales came in weaker at 5.3m tonnes (-1% qoq). This is due to the delay in sales deliveries, but as the coal market is still strong (the company indicated that imports from China have increased in July), we believe company will have no problems in selling the inventory. YTD coal production to end- Jun was 11m tonnes (+1 yoy) or 44% of our full year forecast while sales for same period was 10.6m tonnes (-7% yoy,) or 41% of our 2011 estimate.

Jump in ASP… 2Q11 ASP jumped to US$97.4/t (+12% qoq), resulting in 1H11 ASP of US$92.2/t that is well ahead of our FY11 ASP forecast of US$90.9/t. ITMG has already locked in about 82% of this year’s production at US$90/t range, with the balance still unpriced or under index-linked contracts. Our FY11 ASP estimate is more conservative than management’s expectations of US$93-94/t.

to offset increase in cash costs. On the flip side, production cash costs ex. royalty increased to US$45.3/t (+9% qoq) driven by higher diesel oil prices despite the declining stripping ratio. Management has indicated that production cash costs could increase further in 2H11 due to the start of Kitadin Tandung Mayang mine (with higher SR at 16x). Management’s full year estimate of US$46/t is above our forecast of US$44.4/t but we believe the higher costs will be mitigated by the stronger-than-expected ASP.

Bharinto and Tandung Mayang plans revealed. Management revealed more detailed plans to develop the Bharinto and Tandung Mayang sites. The targeted output from these sites is ahead of our forecasts and will provide upside should they materialise. However, we keep our forecasts unchanged for now given the execution risks of operating new mines

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