· Despite posting 22.0% YoY growth in sales volume, Adaro logged in a disappointing 48.7% YoY decrease in net profit to Rp1.15tn in 1H10 from Rp2.24tn a year earlier. Such decrease was due to three key factors, which are 1) lower ASP, 2) higher direct cost and 3) forex translation on stronger Rupiah. The company’s bottom line came in only 28.9% to our and consensus’ full year expectation.
· During 1H10, the company’s ASP dipped by 10% YoY to around US$61/ton in 1H10 period. However, as the company managed to improve its sales volume by 22.0% YoY on higher coal production, Adaro’s revenue in US$ term increased by 11.9% to US$1,304mn in 1H10 from US$1,165mn a year ago. Nevertheless, stronger Rupiah, which increased by 17.0% YoY to an average of Rp9,189/US$ in 1H10 from Rp11,067 in 1H09, eroded the company’s revenue that was booked in Rupiah to Rp11.95tn from Rp12.90tn in the same period.
· At the same time, higher coal sales caused an extra direct cost of 7.4% YoY to Rp8.0tn, where this was largely due to the increase in planned stripping ratio from 5.0x to 5.5x due to mining the deeper part of the mine as well as the 20% production increase compared to 1H09.
· Such weak condition was also added by higher forex loss and an increase in effective tax rate of 54.4% from 47.1% a year earlier. As such, the company’s bottom line eroded significantly in 1H10.
· On quarterly basis, sales volume was lower due to heavy rainfall and affected the company revenue, which decreased by 9.7% QoQ. This was also added by forex loss and higher interest expense on additional bonds issued last year. Thus, net income plunged by 66.1% YoY.
· In all, despite weak bottom line, the company’s revenue and operating income came in inline with our expectation. The risk is weather condition in 2H10, which may affect sales volume and profitability in the upcoming quarters.
· Currently Adaro is trading at 2011F PER of 11.6x and EV/EBITDA of 5.4x, Buy.
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