ADRO
Contact our analyst Revita
71% Upside, BUY
17th December 2020
Current price Rp1555
Target price Rp2660
Lower production growth
In 9M20, coal production reached 41,1 Mt which is 7% lower yoy. Meanwhile, coal sales volume in 9M20 of 40,76 Mt was 9% lower yoy. ADRO has revised their coal production target for 2020 to 52 -54 Mt because of declining demand due to slowing economic growth and weak buying interest from major importing countries. The situation has also had an impact on global coal prices for 9M20. ADRO's sales mix in 9M20 is dominated by E4700 and E4900 products, supported by solid demand for these types of coal. The Southeast Asian Market made up 49% of sales in 9M20. 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.
In 9M20, coal production reached 41,1 Mt which is 7% lower yoy. Meanwhile, coal sales volume in 9M20 of 40,76 Mt was 9% lower yoy. ADRO has revised their coal production target for 2020 to 52 -54 Mt because of declining demand due to slowing economic growth and weak buying interest from major importing countries. The situation has also had an impact on global coal prices for 9M20. ADRO's sales mix in 9M20 is dominated by E4700 and E4900 products, supported by solid demand for these types of coal. The Southeast Asian Market made up 49% of sales in 9M20. 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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Other Businesses progress
In hard coking coal, during 9M20, AMC’s coal sales reached 1,04 Mt, a 27% increase yoy. AMC’s coal was sold to customers in Japan, Indonesia, India, and China. As for the Kestrel coal mine, in 9M20, saleable coal production volume at Kestrel reached 4.06 Mt, 15% lower than in 9M19. Meanwhile its coal sales volume of 4.35 Mt in 9M20, was 7% lower yoy. Kestrel sold its hard coking coal mainly to major customers in the Asian markets and has contracted the majority of its sales for 2020. India remains the largest sales destination in 9M20 followed by South Korea and Japan. ADRO’s power plants achieved a solid performance in 9M20. PT Makmur Sejahtera Wisesa (MSW) reached an availability factor of 94.1% in 9M20, compared to the target of 88.1%. Meanwhile, PT Tanjung Power Indonesia (TPI) continued on its promising trajectory, having reached an availability factor of 98.6% in 9M20, against a target of 82.8%. At the end of September 2020, construction progress of PT Bhimasena Power Indonesia’s 2 x 1000 MW power plant has reached 94.3%. In Water, the project in Kotawaringin Timur, Central Kalimantan, under PT Adaro Tirta Mentaya continues on its construction trajectory. As of 9M20, construction reached 93% and we expect commissioning of this project in 4Q20. Meanwhile, PT Dumai Tirta Persada (DTP) continues to develop the first phase of the project, totaling 50 lps, and is expected to start commissioning in 4Q20.
Valuation: 71 % upside potential
With WACC at 8.1x, we are targeting ADRO to reach 2660 or trade at 20x PER with 71% upside. We recommend BUY.
In hard coking coal, during 9M20, AMC’s coal sales reached 1,04 Mt, a 27% increase yoy. AMC’s coal was sold to customers in Japan, Indonesia, India, and China. As for the Kestrel coal mine, in 9M20, saleable coal production volume at Kestrel reached 4.06 Mt, 15% lower than in 9M19. Meanwhile its coal sales volume of 4.35 Mt in 9M20, was 7% lower yoy. Kestrel sold its hard coking coal mainly to major customers in the Asian markets and has contracted the majority of its sales for 2020. India remains the largest sales destination in 9M20 followed by South Korea and Japan. ADRO’s power plants achieved a solid performance in 9M20. PT Makmur Sejahtera Wisesa (MSW) reached an availability factor of 94.1% in 9M20, compared to the target of 88.1%. Meanwhile, PT Tanjung Power Indonesia (TPI) continued on its promising trajectory, having reached an availability factor of 98.6% in 9M20, against a target of 82.8%. At the end of September 2020, construction progress of PT Bhimasena Power Indonesia’s 2 x 1000 MW power plant has reached 94.3%. In Water, the project in Kotawaringin Timur, Central Kalimantan, under PT Adaro Tirta Mentaya continues on its construction trajectory. As of 9M20, construction reached 93% and we expect commissioning of this project in 4Q20. Meanwhile, PT Dumai Tirta Persada (DTP) continues to develop the first phase of the project, totaling 50 lps, and is expected to start commissioning in 4Q20.
Valuation: 71 % upside potential
With WACC at 8.1x, we are targeting ADRO to reach 2660 or trade at 20x PER with 71% upside. We recommend BUY.
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ADRO