by Batavia Prosperindo Sec
• In-line 9M11 result
In 9M11, the company (ADRO)’s revenue rose 41% yoy to Rp 25,430 billions on the back of 25% increase of ASP and 18% increase of sales volume, despite a 6% increase of cash cost due to rising strip ratio. In non operating income, there was a one-off customer claim of US$ 153 millions (or Rp 1,329 billions) related to repricing of the company’s contracts. In the bottom line, net profit was up by 92% yoy to Rp 3,262 billions. This accounts for 74% of our 2011 estimate and 73% of Bloomberg’s 2011 consensus estimate.
• Solid production growth
We view that the company is still on track with its medium-term goal of 80 millions tonnes of production, which is to accomplish through organic and non-organic growth. Production in 2011 is predicted to reach 48 millions tonnes with 6-yr CAGR of 10.3%. The overburden crushing and conveying system powered by an internal power plant is expected to finish by 2013 and will be able to decrease dependency on oil and reduce production cost.
• Currently-lagging stock price offers attractive valuation
We believe the company has strong fundamentals, reflected through its solid production growth and earnings growth. Future risk includes the lowering of global coal price that may be driven by global economic slowdown. Our DCF valuation with WACC of 12.7% and terminal growth of 1.5% results in the target price of Rp 2,400(2012 PE of 13.0x), relatively similar to our previous target price of Rp 2,360. We recommend Buy with potential upside of 17% from current price.