ADRO Apr2020

ADRO

Contact our analyst Revita

Revenue from

6th April 2020
Current price Rp1100
Target price Rp1400

27% Upside, BUY

Maintain production growth

In 2019, coal production reached 58.03Mt up 7% yoy due to strong output from contractors and the favorable weather conditions throughout the year.
9% yoy increase in coal sales despite a decline in the ASP (Average selling price).
ADRO blended strip ratio was 4,69x due to the higher production. We estimate this year ADRO’s production will be 54Mt or at the lower end of the 2020 guidance, and the strip ratio will be 4,3x due to the unfavorable conditions of commodities,particularly coal because of the corona virus.
We believe ADRO’s coal production target is achievable, driven by sales to existing customers particularly premium ones in ASEAN markets which have long term contracts.
As 2020 is likely to be a difficult year, ADRO will continue to focus on improving operations through cost control, and efficiency.

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New Businesses progress

Going forward, ADRO is looking to grow by integration. With coking coal subsidiary, AMC, Adaro can offset the government thermal coal price cap and create growth for the future.
In 2019, AMC’s coal was sold to customers in Japan, Indonesia, India, China and Europe. In power, ADRO’s power projects with BPI and TPI will start to contribute to earnings from 2019 onward.
TPI (2x100MW PP in Tanjung) has successfully commenced commercial operation of its second unit (100 MW) in December 2019, following the commercial operation of its first 100 MW unit in September 2019.
Construction progress at PT Bhimasena Power Indonesia’s 2x1,000 MW PP in Batang, Central Java has reached 91.8% at the end of 2019.
In Water, PT Adaro Tirta Mandiri (ATM), joined with PT Adhi Karya Tbk (ADHI) to form PT Dumai Tirta Persada (DTP), of which ATM owns 49%. DTP has signed a co-operation agreement with Perusahaan Daerah Air Minum (PDAM) for a water treatment facility in Dumai, Riau. This build, operate and transfer project has a capacity of 450 liters per second and will cost about IDR400 billion. It is targeted to start operation by the end of 2020.
These other projects will also create captive demand for ADRO’s coal.

Valuation: 27 % upside potential

With WACC at 8.9x, we are targeting ADRO to reach 1400 or trade at 5.9x PER with 27% upside. We recommend BUY.

Previously

ADRO