NISP Adaro keeps its subsidiary (ADRO, Rp2,025, Buy)

Adaro cancels its plan to offer its subsidiary, Saptaindra Sejati (SIS), to public.
Adaro sees no advantage to sell SIS as the company currently holds a majority
position (97%) in this mining contracting company.

For its business expansion, Adaro prepared US$430mn to support its project,
including its conveyor system. This facility will also be supported by 2x30 MW
independent power plant to support the activities.

Separately, Adaro proposes to supply coal to Pemalang and Kalsel Power Plants,
which could consume up to 7mn tons of coal per annum.

We view the commencement of conveyor will lower the company’s fuel cost.
Initially, Adaro foresees it may save US$3/ton of cash cost from conveyor system
compared to diesel based transportation.

Currently ADRO is trading at 2010F PER of 17.2x and EV/EBITDA of 7.7x, Buy.