Mandiri Sekuritas Preferred dividend play

Indo Tambangraya Megah (Indotambang) earned US$234.9mn in FY08, which was above our and consensus estimates of US$204.0mn. Main contributor of the difference is a US$27.1mn gain on derivative transactions. If excluded, the net income would be US$217.7mn, within our and consensus estimates. Most expensive among the IDX coal players on EV/reserve basis (US$2.8/ton), ITMG is the cheapest in 2009F PE (4.8x), excluding Bumi Resources, and highest in dividend payout ratio (45%). We maintain Buy on its attractive PE and its high dividend.

+74.6% higher average selling price, better than Bumi and Bukit Asam. Despite the strong rise of coal price in 2008, not many Indonesian coal miners were able to improve their production volume. The 2008/2007 production growth registered for Bumi Resources was -2.3% yoy, Bukit Asam +16.4% yoy, Adaro +5.8% yoy, while ITMG saw its volume growth dropping slightly by 1.7% to 17.7mn tons. Average selling price (ASP) realized for ITMG rose by 74.6% yoy to US$73.9/ton,< /st1:PersonName> while PTBA ASP’s increased 48.5% yoy, and Bumi 9M08/FY07 ASP’s was up 60.2%. This showed ITMG’s ability to manage its contracted and floating coal sales.

2009 production volume at 20.0mn tons. An increase of 12.9% yoy is mainly expected to come from Indominco (+1.7mn tons, with Trubaindo adding 0.5mn tons, and Jorong add another 0.1mn tons. We think there are downside risks for the targeted production volume as rainfall is still heavy up to the first three months of 2009 and port expansions are still ongoing until mid 2009. Around 57% of the volume is contracted and priced below US$80/t. We’re assuming 20mn tons production with ASP of US$61.6/t. Our 2009 ASP is achievable barri ng no price shock in coming quarters. Recent news on Xstrata completing deal with Chubu Electric at US$70-72/t was an indication of a possible price-bottoming.

Maintain Buy with Rp15,129 target price. No specific company catalysts expected therefore upside momentum will depend on higher coal price and general sentiment of bottoming commodity prices. ITMG is an attractive dividend play with yield expected at 9.5%.