Danareksa Revealing the true potential PTBA (TP Rp24,500)

TP upped to Rp24,500
We have greater confidence in PTBA after approval was given by the Minister of Transportation to start the construction of a 307-km railway track connecting its Banko Tengah Mine in South Sumatera to Srengsem in Lampung. The railway, when finished and fully utilized, will provide additional throughput capacity of 20Mt to PTBA. At almost the same time, PTBA and the state railway company PT Kereta Api (PTKA) signed an agreement that will provide a gradual increase in railway capacity to 22.7Mt, or higher than the 20Mt expected earlier. With total throughput capacity of the railways to swell to 42.7Mt in the long-term from currently 11.3Mt, PTBA can begin unlocking its 1,770Mt reserves just in time for when demand for coal is increasing worldwide. We estimate the increase in capacity will help push up the company’s sales at a 5-year CAGR of 14% to 25.7Mt in 2014. Based on this expectation, our DCF valuation produces a TP of Rp24,500, implying a PE 10F/11F of 24.8x/19.2x. This sounds expensive but at a PEG 10F/11F of 1.24x/0.96x, the shares remain attractive we believe. BUY maintained.


Higher revenues and earnings
The increase in railway capacity will help PTBA increase sales. This will mean higher revenues and higher earnings. In 2017, when capacity is estimated to increase to 42.7Mt (our previous estimate was 20Mt), PTBA’s sales are expected rise to 44.7Mt (our earlier estimate was 22.1Mt) and its revenues are expected to reach Rp23,226bn (99% higher than our previous estimate of Rp11,654bn). Although PTBA forecasts the 42.7Mt throughput capacity to be available by 2016, we are more conservative and expect this level of capacity to be attained one year later in 2017. We take this view since the railway capacity next year will be the same as this year at 10.3Mt (it had been previously estimated to increase to 11.3Mt). This is due to slight delays in the delivery of rolling stocks from PTKA from early 2010 to the end of 2010. As a consequence, we lower our sales estimate for 2010 to 14.3Mt (previously 15.5Mt). This also means lower 2010 revenues and lower earnings estimates of Rp8,797bn (previously Rp9,507bn) and Rp2,279bn (previously Rp2,499bn), respectively. However, we choose not to change our target of 13.7Mt capacity in 2011 since the new rolling stocks, when ready, will give a 21% boost to capacity, matching our existing target.


“Take or pay” scheme secures capacity target
The agreement between PTKA and PTBA contains a clause about a “take or pay” scheme which has been devised as a guarantee by PTKA should the throughput target fail to be achieved. We view this positively as it shows a commitment from PTKA to overcome any obstacles hampering the company from delivering the promised capacity to PTBA, including the issue of Rp450bn-600bn of tax clearance arising from asset revaluation which so far has not been approved by the Minister of Finance, thus holding back the establishment of PT Kereta Api Trans Sriwijaya, the joint venture with PTKA that will be responsible for the development of the Banko Tengah-Srengsem railway. For PTBA the scheme (the formula is yet to be calculated by both companies) will minimize any potential losses that might be incurred caused by delays in the delivery of targeted railway capacity.