Indo Tambangraya Megah Result note - Costs remained high - by Rania Rahmundita(ITMG IJ / ITMG.JK, NEUTRAL - Maintained, Rp9,600 - Tgt. Rp10,700, Basic Resources)
Indotambang's FY08 net profit jumped 320% yoy to US$234.9m, in line with our expectations but 17% above consensus. Production was mediocre, while costs remained the highest. There was a gain of US$27m from derivative transactions. There are additional coal-swap contracts maturing in 2009-10. The wide range of swap prices (US$68-165/tonne) makes it difficult to forecast gains/losses from these transactions. We remain Neutral, albeit with a higher DCF-based target price of Rp10,700 (WACC 16-21%) (from Rp10,000), resulting from longer life-of-mine assumptions. We do not expect production growth to be substantial, while costs are stickier than for the others, given a high and sticky strip ratio.
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