CIMB Adaro Energy Initiating coverage - The new "it" coal

Initiating coverage - The new "it" coal - by Rania Rahmundita
(ADRO IJ / ADRO.JK, OUTPERFORM, Tgt. Rp1,030, Basic Resources)

We see high potential sales growth for Adaro's Envirocoal given its niche in the clean coal market and the potential growth of this market. Adaro Energy should weather this recession, having oversold its FY09 coal production. Its sales mix and the re-pricing of low-based legacy contracts to market prices suggest earnings could quadruple in FY09. We initiate coverage with an Outperform rating and DCF-based target price of Rp1,030 (WACC 15.4-21%, LTG 0%). Risk perception should soften, accentuating Adaro's attraction as a better alternative coal stock than Bumi, while the expiry of a share moratorium for cornerstone investors in Mar 09 could improve its share liquidity.