Ciptadana ITMG - All positives priced in

FY09 result: Performing better
PT Indo Tambangraya Megah (ITMG) performed better than our expectations in 2009—booking a y-o-y increase in sales and net profit of 14.5% and 42.8%, respectively. The achievement is strongly supported by higher coal production and lower expenses. Coal produced was 21.4Mt (+21.1% y-o-y), slightly higher than management’s guidance for the year and our assumption of 18.6Mt. Realized FY09 ASP of USD 73.9/ton was inline with our assumption of USD 72.8/ton. The higher net income was supported by the company’s ability to control costs (operating costs down by 2.3% yoy) and forex gain which amounted to USD 4mn in 2009 compared to a forex loss of USD 18.0mn in 2008. With their performance last year, the company has decided to pay a dividend of USD 234.88mn off of their 2009 net income to their shareholders on May 19, 2010.

Some of 2010 coal production already priced-in
With coal output increased 20.9% yoy to reach 21.4Mt in 2009, ITMG is targeting a higher coal output of 23.0Mt in 2010. The additional tonnage is expected to come from Indominco East Block and Trubaindo. Off the target, so far 53% of the coal output has been priced in at USD 66 – 67/ton, 25% is index-linked, 8% is under negotiation, and only 14% of 2010 production is still un-priced. With a bigger portion of the un-priced part being higher calorific value coals, we expect average selling price in 2010 for the company to be at USD 69.5/ton.

Increasing contribution from Indominco East
Started its production since April 2009, Indominco East Block has produced a total of 1.9Mt of coal in FY09. The company is expecting to produce 5.0Mt from this site in 2010, contributing to the expected production growth of 7.5% yoy. Production from East Block will be boosted to 11Mtpa in 2015. We are projecting coal production of 22.8Mt in 2010, in-line with management’s forecast.

Upgrade TP to Rp 38,000/share; change recommendation to HOLD
With Indominco East Block expected to produce more, the Bontang terminal expansion and the power plant project to be completed this year—thus lowering cost—ITMG is ready for 2010. Using a DCF valuation with 11.4% WACC and 3.0% long-term growth rate, we derive our TP of Rp 38,000/share. Knowing the company has fine fundamentals, investors have been collecting the share, hence, the share price has risen 58.9% since our last report. Now trading at Rp 37,900/share, we believe all the positive developments are already reflected. HOLD.