Quick Takes – Adaro Energy – Singapore Court of Appeal ruling
We maintain Outperform on Adaro and our DCF-based target price of Rp1,200 (WACC 15%, LTG 0%). We do not believe there will be any material impact on Adaro or current shareholders following the ruling by the Singapore Court of Appeal over Adaro's 2001 ownership change yesterday, although short-term sentiment on the stock may be affected. As far as Adaro and current shareholders are concerned, nothing is going to change. In fact, the court has found the 2001 purchase of Adaro lawful, confirming Dianlia as the rightful owner of Adaro. What pans out next between Beckett and Deutsche Bank should not affect Adaro and existing shareholders.
Kamis, 30 April 2009
Citigroup - Flash: China Shenhua Energy (1088.HK): Buy: 1Q09 NI Good; Coal Sales Mix Unsustainable Lowering ASP
1Q09 NI RMB7,936m, down -14% YoY, up 102% QoQ - Strong results at a headline level for Shenhua. Annualized 1Q09 would be 3.5% ahead of our FY09E EPS. QoQ improvement in production up 5.5%, gross margin up 14%pts and net margin up 7.1%pts.
Performance driven by high spot sales mix at 36% (norm. c20%) - Spot sales at 36% compares with 1Q08 at 20% and 4Q08 at 32.6%. Spot "seaborne" (QHD equivalent) volumes were up 48% YoY. Moreover, the price was at a 4.7% premium to the contract priced seaborne coal for 1Q09
Contract settlement could reverse this trend, lowering ASP by -4.2% - With contract settlement imminent volumes could shift back from spot to contract. Our analysis shows that if we place 1Q09 volumes on 1Q08 product mix, then ASP would fall by -26% for spot sales. This is because the higher ASP products are de-emphasized. Aggregating, domestic sales ASP drops -4.2%, equivalent to lowering earnings by 5.3%.
1Q09 achieved contract prices look shy of market expectations - On average, contract prices look to be up 3.9% YoY, with the benchmark seaborne coal contracts up 7.5%. Even if the top IPP customers sign up 10% then an average 10% increase is unlikely to be achieved. We currently assume a 5% total contract price increase.
Performance driven by high spot sales mix at 36% (norm. c20%) - Spot sales at 36% compares with 1Q08 at 20% and 4Q08 at 32.6%. Spot "seaborne" (QHD equivalent) volumes were up 48% YoY. Moreover, the price was at a 4.7% premium to the contract priced seaborne coal for 1Q09
Contract settlement could reverse this trend, lowering ASP by -4.2% - With contract settlement imminent volumes could shift back from spot to contract. Our analysis shows that if we place 1Q09 volumes on 1Q08 product mix, then ASP would fall by -26% for spot sales. This is because the higher ASP products are de-emphasized. Aggregating, domestic sales ASP drops -4.2%, equivalent to lowering earnings by 5.3%.
1Q09 achieved contract prices look shy of market expectations - On average, contract prices look to be up 3.9% YoY, with the benchmark seaborne coal contracts up 7.5%. Even if the top IPP customers sign up 10% then an average 10% increase is unlikely to be achieved. We currently assume a 5% total contract price increase.
Macquarie Bank Danamon: BIG correction on special mention loan figure
When BDMN had its analyst meeting on 23 April, the bank showed an alarming 44% q-o-q increase in special mention loans, from Rp5,398bn (Dec-08) to Rp7,805bn (Mar-09). The figure has caused some concerns, as it implies that in just one quarter, about 20% of BDMN’s corporate loan book (or Rp1,921bn) had received special mention status. Yesterday, BDMN amended the presentation with a corrected special mention loan figure of just Rp5,978bn, 23% lower than the earlier reported figure. The company made a mistake calculating the Mar-09 special mention loan number the first time, by including category 3, 4, and 5 loans. The corrected figure implies only Rp132bn corporate loans became special mention in 1Q09, as opposed to an earlier (much more alarming) figure of Rp1,921bn.
Since the analyst meeting, BDMN share price has corrected by 3% while the JCI bank index was flat. Macquarie rates BDMN as Outperform with PxT of Rp3,750, with the stock trading on 12.1x and 8.2x FY09-10 P/E and 1.4x FY09 P/BV.
Macquarie NDRC coal analysis - interesting points (Yeeman Chin)
=> The NDRC published their analysis on the coal industry in 1Q09 on the website, with some interesting points:
Market balance in China
=> They view the market as "roughly balanced leaning towards a surplus".
=> They expect this surplus to continue into the rest of the year.
Production and distribution
=> Raw coal production of "medium to large scale" producers was 602m tonnes, up 6.3% YoY.
=> Total coal throuput on the national rail network was 307m tonnes, down 8.5% YoY and 4.7% QoQ.
=> Port dispatch volumes was 107m tonnes, down 17.5% YoY and 1.3% QoQ.
=> Notice that total production was up whereas rail throughput and port dispatch is down.
=> This has two possible explanations:
1) Production numbers are not reliable because some small mine production goes unreported and thus the headline growth number is overstated; and
2) the coal is not getting out for some reason?
Profitability of the industry
=> Total profits for large coal mining enterprises was Rmb18.1bn, down 17% YoY.
=> Interestingly, after stripping out Shenhua Group and China Coal Group, profits are down ~40% YoY.
=> The article also commented that more than half these producers are "barely profitable" .
=> With further weakness in the coal market and increased policy-related costs and higher fixed costs, profitability is expected to decline further.
=> This is interesting because as it suggest that the downside for prices is somewhat limited.
=> People often focus on the strong profitability of companies like Shenhua, China Coal, Yanzhou but they seem to be the exception rather than the norm in the industry.
Other comments
=> Consumption was 674m tonnes, down 4% YoY but up 5.4% QoQ.
=> Consumption in the power industry fell 8% YoY and rose 8.7% QoQ to 378m tonnes.
=> Coal consumption in steel industry was 109m tonnes, up 2% YoY and 15.7% QoQ.
=> Usage in cement was 70m tonnes, up 7.6% YoY but down 24.7% QoQ. Coal use in chemicals was 34m tonnes, up 2.3% YoY and 9.7% QoQ.
=> Imports were up 21% YoY and 63% QoQ to 13.59m tonnes.
=> Exports fell 28% YoY and 24% QoQ to 7.38m tonnes.
=> Net imports increased by 7.6mt QoQ and 5.15mt YOY to 6.2m tonnes.
=> The average ex-mine price for large mining enterprises was Rmb452/t in 1Q09, up 13.5% YoY but down 3.3% YoY.
=> Total inventories was 206m tonnes, up 20.7% YoY but down 12.7% since last December.
=> Inventories at coal mines was 48m, up 27.8% YoY but down 5.7% QoQ.
=> Port inventories were 13.16mt, down 10% YoY and 33.4% QoQ.
=> IPP inventories were 27.94m tonnes, up 23.3% YoY and down 35.5% QoQ.
Link to full article (in Chinese): http://www.ndrc.gov.cn/jjxsfx/t20090427_274995.htm
Market balance in China
=> They view the market as "roughly balanced leaning towards a surplus".
=> They expect this surplus to continue into the rest of the year.
Production and distribution
=> Raw coal production of "medium to large scale" producers was 602m tonnes, up 6.3% YoY.
=> Total coal throuput on the national rail network was 307m tonnes, down 8.5% YoY and 4.7% QoQ.
=> Port dispatch volumes was 107m tonnes, down 17.5% YoY and 1.3% QoQ.
=> Notice that total production was up whereas rail throughput and port dispatch is down.
=> This has two possible explanations:
1) Production numbers are not reliable because some small mine production goes unreported and thus the headline growth number is overstated; and
2) the coal is not getting out for some reason?
Profitability of the industry
=> Total profits for large coal mining enterprises was Rmb18.1bn, down 17% YoY.
=> Interestingly, after stripping out Shenhua Group and China Coal Group, profits are down ~40% YoY.
=> The article also commented that more than half these producers are "barely profitable" .
=> With further weakness in the coal market and increased policy-related costs and higher fixed costs, profitability is expected to decline further.
=> This is interesting because as it suggest that the downside for prices is somewhat limited.
=> People often focus on the strong profitability of companies like Shenhua, China Coal, Yanzhou but they seem to be the exception rather than the norm in the industry.
Other comments
=> Consumption was 674m tonnes, down 4% YoY but up 5.4% QoQ.
=> Consumption in the power industry fell 8% YoY and rose 8.7% QoQ to 378m tonnes.
=> Coal consumption in steel industry was 109m tonnes, up 2% YoY and 15.7% QoQ.
=> Usage in cement was 70m tonnes, up 7.6% YoY but down 24.7% QoQ. Coal use in chemicals was 34m tonnes, up 2.3% YoY and 9.7% QoQ.
=> Imports were up 21% YoY and 63% QoQ to 13.59m tonnes.
=> Exports fell 28% YoY and 24% QoQ to 7.38m tonnes.
=> Net imports increased by 7.6mt QoQ and 5.15mt YOY to 6.2m tonnes.
=> The average ex-mine price for large mining enterprises was Rmb452/t in 1Q09, up 13.5% YoY but down 3.3% YoY.
=> Total inventories was 206m tonnes, up 20.7% YoY but down 12.7% since last December.
=> Inventories at coal mines was 48m, up 27.8% YoY but down 5.7% QoQ.
=> Port inventories were 13.16mt, down 10% YoY and 33.4% QoQ.
=> IPP inventories were 27.94m tonnes, up 23.3% YoY and down 35.5% QoQ.
Link to full article (in Chinese): http://www.ndrc.gov.cn/jjxsfx/t20090427_274995.htm
Macquarie Coal update
Adam Worthington (analyst) came back from his first China trip still feeling cautious toward thermal coal price. They think that China thermal coal market could be over-supplied by between 100-400mn tons, and that China domestic coal price is at artificially high level due to “temporary” maintenance schedule at QHD port, that handles around 10% of China coal volumes. This artificially high domestic price in China is causing the country to import thermal coal, temporarily sustaining the international price. Separately, Yeeman Chin (China coal analyst) wrote a comment on NDRC analysis of China coal market in 1Q09 below.
Personally, I still have my doubts that a temporary maintenance schedule at one port that only handles 10% of volume can cause this much price disturbance. There could be bigger forces (ie: re-stocking or normalization of production activities) at work here, that warrant some optimism. Having said that, I think investors should consider taking some profits out of PTBA and Adaro Energy. Meanwhile, Bumi Resources and ITMG appear to be relatively better bet for the next three months.
PTBA just reported a solid but in-line 1Q09 results with revenue +89% y-o-y (22% of FY), EBIT +201% (29% of FY), NPAT +221% (32% of FY), and a net cash position of Rp3.5trn (US$321mn). What worries me today is the comment by PTBA CEO Mr.Sukrisno, saying that the company is evaluating the purchase of a 17% stake in Adaro Energy (Rp5.4trn value at Rp1000/share vs. PTBA market cap of Rp20trn), in a bid to boost its coal reserves. The market may react negatively to this comment, as the market may struggle to understand the logic of the acquisition and start pricing-in an increased acquisition risks (thanks to net cash position). Macq rates the stock a Neutral on 6.7x and 14.4x P/E for 2009-10 and Rp7,500/share DCF.
Adaro Energy received a good news yesterday after the controlling shareholders (Dianlia) won the case against Beckkett in the Singapore Court of Appeal, saying that they are the rightful owner of the company. Irrelevant to Adaro’s investment case, Beckkett won the case against Deutsche Bank for selling the stake to Dianlia without a proper procedure, although Deutsche Bank could be looking to counter-suit Beckkett for the loan default. All said, the stock may have a hard time pushing through the IPO price of Rp1,100/share, with potential overhang from the 17% stake sale owned by the private equity firms. Macq rates the stock a Neutral on 6.3x and 14.7x P/E for 2009-10 and 890/share DCF.
Personally, I still have my doubts that a temporary maintenance schedule at one port that only handles 10% of volume can cause this much price disturbance. There could be bigger forces (ie: re-stocking or normalization of production activities) at work here, that warrant some optimism. Having said that, I think investors should consider taking some profits out of PTBA and Adaro Energy. Meanwhile, Bumi Resources and ITMG appear to be relatively better bet for the next three months.
PTBA just reported a solid but in-line 1Q09 results with revenue +89% y-o-y (22% of FY), EBIT +201% (29% of FY), NPAT +221% (32% of FY), and a net cash position of Rp3.5trn (US$321mn). What worries me today is the comment by PTBA CEO Mr.Sukrisno, saying that the company is evaluating the purchase of a 17% stake in Adaro Energy (Rp5.4trn value at Rp1000/share vs. PTBA market cap of Rp20trn), in a bid to boost its coal reserves. The market may react negatively to this comment, as the market may struggle to understand the logic of the acquisition and start pricing-in an increased acquisition risks (thanks to net cash position). Macq rates the stock a Neutral on 6.7x and 14.4x P/E for 2009-10 and Rp7,500/share DCF.
Adaro Energy received a good news yesterday after the controlling shareholders (Dianlia) won the case against Beckkett in the Singapore Court of Appeal, saying that they are the rightful owner of the company. Irrelevant to Adaro’s investment case, Beckkett won the case against Deutsche Bank for selling the stake to Dianlia without a proper procedure, although Deutsche Bank could be looking to counter-suit Beckkett for the loan default. All said, the stock may have a hard time pushing through the IPO price of Rp1,100/share, with potential overhang from the 17% stake sale owned by the private equity firms. Macq rates the stock a Neutral on 6.3x and 14.7x P/E for 2009-10 and 890/share DCF.
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