Despite having a slow start, 2009 turned into a good year for Adaro as the company managed to boost its coal production and sales volume in 2H09 periods. As such, the company ended 2009 with robust growth in its net income to Rp4.4tn, 392.3% YoY higher compared to 2008 period. Its ability to speed up coal production in 2H09 made us more optimistic on the company’s production growth target, hence we revisit our assumption on Adaro’s operational and financial projection. The company’s achievement in becoming BHP’s partner for Maruwai would also help Adaro to post a strong financial performance. Thus, we still maintain our buy recommendation on Adaro with a new target price of Rp2,800/share.
2009 turned into a good year for Adaro
During 2009 period, Adaro managed to post a solid improvement where its revenue grew by 48.9% YoY to Rp26.9tn and its bottom line leapt by 392.3% to Rp4.4tn as compared to Rp887.2bn in 2008 period. The result was relatively inline with market and our expectation where net income came in at 96% and 98% to our expectation and consensus respectively. The achievement was largely due to stronger average selling price and Adaro’s ability to boost coal production during 2H10. Total coals produced by the company reached 40.6mn tons, which translates into 22.6mn tons of coal production during 2H09, considering the company had only produced 18.0mn tons of coals during 1H09 period.
New production assumption
This strong production indicates Adaro’s ability to boost production to achieve the company’s production target of 80mn tons in the next four years. Hence, we revise up our production growth target on Adaro from 12.0% CAGR to 13.8% CAGR or reflecting a more moderate spread of production assumption in 2014F of 77.1mn tons compared to the company’s target of 80mn tons.
Higher net income
The adjustment on production growth assumption translates into a higher sales growth estimate of 12.9% CAGR compared to our previous forecast of 12.0% CAGR. Higher sales volume assumption minimized the impact of locked coal selling price this year. Kindly recall, Adaro is still required to deliver another 10mn tons at a locked coal selling price in 2010F. Hence, the new assumption pushed up our estimate on Adaro’s net income 14.2% on 2010F to Rp3.7tn, 10.8% and 18.5% for 2011F and 2012F.
The winner of Maruwai
Meanwhile, the latest news reports that Adaro has managed to become the winner and partner to BHP for the Maruwai coal mine project. Adaro owns 25% of the Maruwai project through a JV company with BHP, which owns the remaining 75%. The project covers seven Coal Contracts of Work (CCoWs) located in East and Central Kalimantan in Indonesia. Undeveloped metallurgical and thermal Coal Resources are estimated at 774 mn tons.
Maintain Buy with a new target price
Overall, our new assumptions on Adaro translates into a higher target price at Rp2,800/share or presents a 42.9% upside from current share price. We like Adaro for its proven track record on production growth and its current strong cash position that enables the company to adequately finance its projects.
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