Despite heavy rain, operationally in-line 2Q results with 1H10 Sales volume +22%YoY to 21.8m tonnes, and 1H10 ASP -17%YoY to USD55.6/t. Therefore 1H10 EBITDA Rp4,262bn (-23%YoY & 41% of 2010F) on the back 1H10 Revenue Rp11,985bn (-7%YoY & 44% of 2010F). During CS Asean day last Friday, Management disclosed that volume has been fully contracted for 2011 and ASP has been 30% fixed to Index while 50% will be priced to Japan coal index (currently +50% YoY from $70 to $98). Based on Fonny’s existing forecast, at Rp1,980- trading on 15.4x-10.9x 2010F-11F PER, 4.1% 2011F Dividend Yield and implying 26% upside to Target Price Rp2,500 (based on 14x 2011F PER), I personally recommend Buy on Weakness ADRO!
· Fonny Surya: ADRO reported 2Q net profit of Rp 292bn, down 66% QoQ and 73.5% YoY. 1H EBITDA profit is in-line at 41% of our full year forecasts (2Q EBITDA declined 24% QoQ and declined 35% YoY) and 45% of consensus. However, net profit is about 28% our forecasts and 29% of consensus primarily due to higher effective tax rate at 54%, non recurring forex loss, and higher interest expenses.
· ASP is flat QoQ at US$ 55.7/t as most of the prices were still based on 1H09 benchmark. 2Q volume released in July was a 9% QoQ decrease due to heavy rain. Cash cost ex-royalty increased by 11.4% QoQ at US 33/t due to higher mining and coal processing costs. Overall EBITDA margin decreased from 39% in 1Q to 32% in Q2.
· Pending talk to management to get more clarifications on 2H outlook , we do expect a better result in 2H from improving ASP and volume.
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