CLSA Indo Tambang, 17% yield, 3.2x PE, net cash

Research Today: Indo Tambang, 17% yield, 3.2x PE, net cash

Seriously, I think Mr Warren Buffet will like these numbers:
3x 09CL, ROE 41%, Divy yield at a whopping 16.8% and most importantly net CASH (Cash bal of US$222mn Vs mkt cap of $960m).

No wonder this is our in house coal guru Olie top pick in the sector. It is just the numbers are just simply to compelling. Sure we have seen some weakness in coal prices as power consumption weakens in China, the good news is ITM has already contracted 57% of 20.5mn output (we assume only 19mn tonnes output, so % of coal already contracted to our output forecast is as high as 61.5%) at a very respectable price of US$82/ton. Managements conservative policy to lock in coal price early has really paid off! BTW - this is the one of handful of companies I have seen in the last few months that actually posted a gain in on hedging cost and price. Down 75% from peak, this stock is on fire sale. BUY!



Key points from the report:
Management shared their optimism production and cost outlook but was cautious in guiding for price prospect in an analyst meeting yesterday.
The management is confident that ITM could achieve 16% YoY production growth given available equipment, better data, and improved water management while also expect some cost reduction this year due to lower fuel price.
On thermal coal price outlook, the management see demand could weaken by some 2% to 4% this year. They also expect no supply growth from Indonesia and potential supply reduction from Russia and the US, but see risk soft-coking coal supplying thermal coal market.
At this juncture, we remain comfortable with our earnings forecast for ITM as we have been conservative on volume and costs, and price, to some extent.
We continue to believe it is best to stick with defensive name such as ITM that has high portion of contracted tonnage and robust balance sheet. We expect dividend to flow soon, yielding an industry high of 17%.