CIMB 2QFY10 Results - Adaro Energy - Bad quarter

We downgrade Adaro to Neutral from Outperform. 1H10 core net profit was 15% below our forecast and consensus expectation, with the culprits being a currency mismatch, weak production and lower ASPs, all of which caused EBIT to be 8% lower than expected, worsened by a higher-than-expected effective tax rate. We are cutting our FY10-12 EPS estimates by 19-32% as we reduce production expectations and adjust our tax rate. Our target price falls to Rp2,100 from Rp2,375 following a lower NAV estimate for its thermal-coal operation. The company has no plans to change its reporting to US$, meaning its currency mismatch may persist. If Adaro could meet its 45m-tonne production target this year, there is 11% upside to our net profit forecast to Rp3tr.