2009 target : achievable. With existing railway line, PTBA is expected to achieve its 2009 target. The monthly highest volume transported in 2008 (Jan-Sept) through railway was 945k (11.3mn tons annualized). In addition to the mine-mouth coal sales of 1.2mn tons, PTBA’s total output reached 12.5mn tons, 300k tons short of its output target in 2009. With 130 additional wagons commissioned in July-August 2008, the above output is attainable in our view.
Would PTBA’s Rp884,000/ton for 6.1mn tons contracted price be renegotiated? No, we don’t think so. The head of PLN’s primary energy unit, Nasri Sebayang, recently threatened it would seek to renegotiate coal contracts if coal price is above Rp750,000/ton. PTBA dealt with Indonesia Power (IP), a PLN subsidiary which operates independently from PLN. Our check with IP convinced us that PTBA’s contracted coal price will remain. However, the remaining amounts for PLN (estimated: 1.2mn tons) will be adjusted accordingly.
New mining law? Good for SOE miners. The Minister of State Enterprises’ Affairs requested the Minister of Mine and Energy to consider privileges for SOE miners in the implementation of the new Mining Law. Privileges asked were the removal of acreage limitations, status of concessions during the transition phase, and exemption of domestic obligations if domestic market can not absorb the products at market prices.
Maintaining a Buy with target price of Rp9,380. We’re fine-tuning our estimates to reflect better costing structure, and royalty. Our DCF calculation based on WACC of 17%, benchmark coal price of US$75/t, resulted in a fair value of Rp10,405. Our target price, which was derived from previous forecast, is maintained, still at 10% discount to our DCF. At our target price, PTBA is traded at 7.9x 2009F PE, a 21% discount to our target 2009F market PE of 10x.
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