Bahana ITMG HOLD (Changed from Reduce) TP: IDR8,900 (From IDR8,500)

Greater operating efficiencies in the cards
In 2009, Indo Tambang Raya (ITMG) is set to enjoy greater cost savings and operating efficiencies as the company’s new coal-fired power plant will be operational by April 2009. This will be used to replace current generators that are running with diesel oil to supply electricity for conveyor belts in IMM port and crushing plant at East block. Total cost savings should be around USD2m per annum.

Lower than expected 2008 volume could continue into 2009
On a more negative note, ITMG did not reached its 19.5m tons sales target in 2008. However, with the actual number still undisclosed, we maintain our volume estimate at 18.6m tons. The lower sales realization than initial estimate was caused by weakening demand. Because slower demand is
likely to persist into 2009, we expect ITMG’s volume to remain stagnant at 18.6m tons, compared to the company’s 2009 target of 20.5m tons.

HOLD with TP of IDR8,900
We remain negative on the coal sector as we believe coal price will further come off, supported by recent news that South Korean utilities have drawn contracts with Australian coal producers at USD70/ton including freight costs. This coupled with possible disappointment on weaker than expected volumes, we rate ITMG a HOLD. Our DCF-based TP of IDR8,900 is derived using 17.7% WACC, 3% long-term growth rate and 8% risk premium.