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Wednesday, December 14, 2011

Indo Tambangraya Megah Tbk - More High CV Coal to Come

by Trimegah Securities

2012 Outlook

We maintain our production outlook for the company, looking for 12.0% YoY growth on 2012 production, equals to 27.0mn tons and growing further by 15.9% YoY to reach 31.3mn tons in 2013. We cut our 2012-2013 ASP assumption by 2.8% and 1.3%, respectively, to reflect our lower 2012 coal price assumption. There’re still M&A potentials going forward even though we think it is unlikely to happen in the near term. As such, we’re still looking for 75% dividend payout ratio, equals to 5.9% of dividend yield, the highest among coal companies under our coverage.

Optimizing Its High Calorie Assets

Besides expanding its Indominco’s East Block, ITMG’s future growth will be driven by its high coal calorie assets. Kitadin Tanjung Mayang is expected to start its commercial production this year with production expectation at 0.4mn-0.5mn tons before gradually increase to around 2.0mn tons per annum. Moving inland, the company owns 2 high calorie coal concessions named Trubaindo and Bharinto (6,250-7,000 Kcal/kg range of coal products). Both concessions’ reserves reached 154mn tons, accounted for 46% of company’s total reserves. As such, we expect company’s blended CV to increase going forward, thus supporting the ASP.

Visiting Trubaindo Site, Expansion Project Is Running Well

Based on our recent mine site visit to Trubaindo in early Nov’11, we saw the expansion programs were going as well as planned. Production also looked encouraging with 7.3mn tons output in 2011, 4.1% higher than our estimate. Should the weather continue to be in normal state, there will be an upside potential to this management’s guidance. Mining activities will weigh more on the South Block of Trubaindo (15-30km hauling to the crushing plant) and move further to Bharinto (45km hauling to the crushing plant), which will used the same infrastructures with Trubaindo’s coal. The MT goal here is to produce 15mn tons of coal in 2015, 10.0mn tons of which will be coming from Trubaindo while the remaining 5.0mn tons will be Bharinto’s part. We’ve made a minor revision to raise the production output target at Trubaindo and Bharinto.

Maintain HOLD, TP of Rp47,100

We maintain our HOLD recommendation for the counter because of limited upside potential to our fair value calculation (+10.0%). We incorporate our lower 2012 coal price assumption, raise our assumption on Trubaindo and Bharinto’s production output after recent site visit to Trubaindo as well as higher stripping ratio adjustment. As a result, our FY12 EPS assumption declined by 11.2% while FY13 EPS assumption increased by 3.1%. Our DCF model suggests the target price of Rp47,100. It implies 9.6x 2012est PE.

Key Risks: Fluctuation on global coal prices, delays in Bharinto Project, depleting reserves will make potential higher production costs ahead in order to keep production volume.

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