OSK Adaro Energy (ADRO IJ) - Quality assets and strong operations, accumulate on dips. Hold, TP IDR2,092

Adaro Energy is the holding company of Adaro Indonesia, which is Indonesia's second-largest coal producer with reserves of 870m tons in 2008. The company has an integrated business model that spans mining, mining contractor work, and port services. The company operates the Tutupan coal mine − Indonesia's largest single coal mine − in South Kalimantan. Adaro Indonesia holds a first-generation CCOW contract with the government of Indonesia, expiring in 2022.
Adaro's plan to double its production capacity to 80m tpa by 2013-14 increases earnings leverage from the coal price upcycle.
Potential of acquisition – The company had recently raised roughly US$1.3bn worth of debt at a relatively attractive rate of 7–8%, which would allow them to undertake significant acquisitions, such as the BHP’s Maruwai coking coal asset.
Target price of IDR2,092 based on 12x 11 PER. Buy below IDR1819.
Risks: Coal prices fluctuations, regulatory changes in Indonesia, incl expiration of mining licenses, disruptions to operations and/or projects under development, poor weather, acquisition execution risks.

OSK BUMI RESOURCES (BUMI IJ) - Largest indonesian coal miner with attractive valuations. Buy, TP IDR2,690

Bumi Resources is the largest coal company in Indonesia. Each year it produces more than 50MM tons of coal. Its operating companies are Kaltim Prima Coal (KPC), Arutmin Indonesia, Gallo Oil and Enercorp, with the first two being the largest of the subsidiaries. Arutmin operates a 30k ha concession in South Kalimantan with coal production totaling 16.8m tons (75% for export). KPC operates a 90k ha site in East Kalimantan with coal production of 28m tons (95% for export). Bumi has total coal reserves of 2.2b tons at the end of 2008.
As Indonesia's largest coal miner, Bumi will continue to benefit from growing domestic and regional coal demand − Bumi is the largest exporter to the Asian region.
Share price had been depressed on lingering tax issues - ongoing tax probe could result in up to US$1.1b in tax liability if Bumi is found guilty of tax evasion.
Risk of a rights issue – Bumi plans to reduce debt levels by US$1.1bn by June, potentially issue up to 10% non-preemptive shares to a strategic partner, resulting in earnings dilution.
Target price of IDR 2,690 based on 10x 11 PER. Buy below IDR2339.
Risks: Lingering tax issues, high debt levels, coal prices fluctuations, regulatory changes in Indonesia, incl expiration of mining licenses, disruptions to operations and/or projects under development.