CITI PTBA Buy: 4Q08 Hit by One-offs; 2009 Outlook Still Firm

Firm ‘09 outlook, reiterate Buy — PTBA’s 4Q08 earnings fell 37% QoQ to Rp386bn, resulting in 2008 earnings coming in 14% below our expectation. Despite the miss in 4Q08, the negative surprise largely came from adjustments(e.g., royalty expense and benefits), which we see as one-off in nature. Thus, we reiterate our Buy rating as the 2009 outlook is still firm while current valuation of 5.3x ’09 P/E appears attractive.

2009 outlook: stronger volume — A bright spot in 2008 results was sales volume achievement of 12.8mt (+18% YoY). This reflects the long-awaited increase in railway capacity. We thus raise our sales volume forecast to 13.7mt and 15.7mt in 2009-10.

‘09 ASP assumption intact (+17% YoY) — Recent indication of regional coal contract settlement of US$70/t is in-line with our expectation. At this juncture, we do not see additional risk on PTBA’s contract price for 2009 given the still favourable domestic demand outlook from new power plants.

Slight earnings revision — The slight revisions on 2009-10 estimates (+2-4%) reflected our higher volumes and lower oil price assumptions. This leads to a slight increase in our target price to Rp8700 (from Rp8,500 previously).

Project update — The JV with railway company PTKA is yet to be finalized (expected by 1H09). We factor in a one-year delay (from the original 2013) to complete the additional railway capacity in our projections.