● PTBA signed a Heads of Agreement (HOA) with India’s Adani group to build a 270-km railway project with a capacity of 35 mtpa. In exchange, PTBA agreed to an offtake of 60% of total volumes transported through this project at the prevailing benchmark price.
● This project will be an addition to the other joint railway project with Rajawali. Assuming that the dual-track program and the Rajawali project are progressing on time, altogether, we forecast PTBA achieve a 54% volumes CAGR between 2013-2015.
● We believe this is a positive for PTBA, and brings it one step closer to unlocking its massive reserves of 1.9 bn tonnes. However, given the uncertainties and challenges, coupled with short-term volumes growth risks from the existing railway, we believe that the benefit is still long term.
● At 18x 2010E P/E and 12x 2011E P/E, we believe that PTBA’s share is not cheap, and long-term growth has been priced in to some extent. We reiterate our NEUTRAL rating and maintain our target price of Rp18,400.
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