1H10 net income significantly below expectations: Adaro reported 1H10 net income of Rp1,153 bn, down 48.7%Y/Y. As, historically, 1H contributes 50.8% to the full year forecast, the reported 1H10 net income came in significantly below both JPM's (31.6%) and consensus' (29.6%) forecast of Rp3,648 bn and Rp3,893 bn, respectively.
2Q10 was weak: Subtracting the 1Q10 result, 2Q10 net income of Rp292 bn declined 73.5% Y/Y and 66.1% Q/Q. The reason for this weak performance was that the Rp strengthened by 13.5% Y/Y and 1.6% Q/Q. Sales volume declined 10.2% Q/Q on the back of heavy rain in 2Q10. Despite this, on a Y/Y basis sales volume rose by 13.1%; lower ASP and stronger Rp caused revenue to fall 10.3% Y/Y. With ASP per ton down by 20.7%Y/Y in Rp terms, cost per ton failed to catch up, falling only by 5.6%Y/Y.
In USD terms, 2Q10 was weak: Although the strengthening of the Rp has negatively affected the operating result, our analysis of 2Q10 results in US$ terms indicates that 2Q10 net income was also disappointing. 2Q10 net income fell 69.4% on the back of higher interest income, forex losses and other non- operational charges. Adjusted for these nonrecurring items, 2Q10 core net income reached US$40.6MM; down 60.8% Y/Y and 56.1% Q/Q. In summary, 2Q10 net income was weak.
Will revisit model; maintain OW and PT of Rp2,600: Meanwhile, we view that the share price could decline on the back of the weak 2Q10 results. We see risk to our and consensus forecasts; and note that our estimates are currently under review. We maintain our Overweight rating and PT of Rp2,600, but will follow up with more detail analysis.
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