Mandiri Sekuritas PTBA: Export : Key 2H10 Earnings Driver

PTBA’s 1H10 Rp908bn net income only made up 34.4% of our FY10F and 37.2% of consensus FY10F While volume sales reached 6.4Mt comprising 38.4% of our FY10F estimate and 41.0 % of the company’s FY10 guidance. 2Q slower export volume and slow increase in export ASP (average selling price) were the main culprits. As most of the domestic price and volume has been settled, exports will be the key driver for PTBA’s 2H performance. We made adjustments for domestic price, resulted in lower FY10 earnings estimate. We are maintaining our target price of Rp18,750, as our DCF was insignificantly affected. Recommendation upgrade to Buy on higher than 10% upside.

Export : key 2H10 earning driver. With volume achievement of only 44.1% of the total company estimate for FY10, and domestic contracted prices short of our expectations of Rp685,000/ton (PLN blended contracts : Rp635,100/ton), hopes for PTBA’s earnings improvement should be coming from the export. Assuming all of domestic sales is for PLN, PTBA has to export 5.0Mt in 2H, more than double the amount in 1H. PTBA aims high in the export, with 20-25% spot transactions and calorific value of 6,700-7,000 kcal.

However, export performance in 2Q10 is poor. Revenue from export fell 23.6% to Rp532bn as volume dropped from 1.3Mt in 1Q10 to 0.9Mt in 2Q10. Export ASP also increased at a slower pace compared with domestic ASP. Export ASP in 2Q10 was Rp580k/ton (+5.8%qoq), while domestic ASP was 634k/ton (+12.8% qoq), this is despite domestic coal has lower calorific values.

Tough task ahead. PTBA expects improved export coal prices in 2H10 on two reasons : (1) higher 2010 benchmark price of US$90/ton vs US$70/ton in 2009, and (2) bigger composition of higher calorific values coals. The biggest impediment we see is the ability of state-owned railway company PTKA to ramp up its delivery. With rain continuing to fall hard and the Moslem festivities looming, the current railway which also accommodates passenger trains, might face disruption due to slower traveling time to avoid slippage and lower priority against passenger trains.

Upgrade to Buy. We see limited catalysts in the next 6-months. Near term improvement is the arrival of 6 locomotives by end FY10 to boost PTKA delivery. We see other development projects are still uncertain due to external licensing process and agreements.