Adaro Energy is the holding company of Adaro Indonesia, which is Indonesia's second-largest coal producer with reserves of 870m tons in 2008. The company has an integrated business model that spans mining, mining contractor work, and port services. The company operates the Tutupan coal mine − Indonesia's largest single coal mine − in South Kalimantan. Adaro Indonesia holds a first-generation CCOW contract with the government of Indonesia, expiring in 2022.
Adaro's plan to double its production capacity to 80m tpa by 2013-14 increases earnings leverage from the coal price upcycle.
Potential of acquisition – The company had recently raised roughly US$1.3bn worth of debt at a relatively attractive rate of 7–8%, which would allow them to undertake significant acquisitions, such as the BHP’s Maruwai coking coal asset.
Target price of IDR2,092 based on 12x 11 PER. Buy below IDR1819.
Risks: Coal prices fluctuations, regulatory changes in Indonesia, incl expiration of mining licenses, disruptions to operations and/or projects under development, poor weather, acquisition execution risks.
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