ADRO
Contact our analyst Revita
41% Upside, BUY
23rd June 2022
Current price Rp2910
Target price Rp4095
1Q22 production lower
ADRO’s 1Q22 coal production reached 12.15 million tons, a decrease of -6% yoy. Sales volume was 12.20 million tons, down -3% on an annual basis. Overburden removal (OBM) reached 48.22 million bank cubic meters (Mbcm) during 1Q22 or down -8% yoy. This is in line with the wet season in 1Q22 that affects ADRO’s operations every year. With a more positive global market outlook, we estimate 2022 production will be higher at 58 million tons as coal prices will remain strong because coal remains the most significant source of energy in Asia. Emerging economies in Asia still rely on coal for electricity generation due to its availability and affordability, despite world plans to reduce carbon emission which could affect future demand for coal.
ADRO’s 1Q22 coal production reached 12.15 million tons, a decrease of -6% yoy. Sales volume was 12.20 million tons, down -3% on an annual basis. Overburden removal (OBM) reached 48.22 million bank cubic meters (Mbcm) during 1Q22 or down -8% yoy. This is in line with the wet season in 1Q22 that affects ADRO’s operations every year. With a more positive global market outlook, we estimate 2022 production will be higher at 58 million tons as coal prices will remain strong because coal remains the most significant source of energy in Asia. Emerging economies in Asia still rely on coal for electricity generation due to its availability and affordability, despite world plans to reduce carbon emission which could affect future demand for coal.
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Improving operating performance
As of 1Q22, ADRO booked revenue of USD 1,225 million, up 77% yoy mainly due to an 86% higher average selling price (ASP) supported by stronger global coal prices. Cost of revenue increased 24% yoy to USD 623 million mainly due to higher royalty expense as a result of the higher ASP. Royalties to the Government of Indonesia and income tax expenses reached USD 320 million, up by 159% y-o-y as a result of higher revenue from sales of coal driven by the higher ASP. ADRO booked bottom line profit of USD 484 million in 1Q22 up significantly from 1Q21. Going forward, ADRO will continue to improve operational excellence, focusing on efficiency and cost control. We estimate Net profit margins during 2022-2023 will average 22%
Debt under control
ADRO in 1Q22 managed to achieve a cash balance of USD 1,556 million while the total net debt to equity at the end of 1Q22 was net cash positive compared to 0.03x net debt in 1Q21. ADRO has a healthy balance sheet, with net cash in 1Q22 on the back of higher operating cash flows and carefully managed spending. During 1Q22, cash flows from operating activites increased 67% to USD 214 million, mainly driven by an increase in receipts from customers.
Valuation: 41% upside potential
We maintain our ADRO target price of IDR 4,095 which translates to a 10x PER. With 41% upside, we maintain our BUY recommendation.
As of 1Q22, ADRO booked revenue of USD 1,225 million, up 77% yoy mainly due to an 86% higher average selling price (ASP) supported by stronger global coal prices. Cost of revenue increased 24% yoy to USD 623 million mainly due to higher royalty expense as a result of the higher ASP. Royalties to the Government of Indonesia and income tax expenses reached USD 320 million, up by 159% y-o-y as a result of higher revenue from sales of coal driven by the higher ASP. ADRO booked bottom line profit of USD 484 million in 1Q22 up significantly from 1Q21. Going forward, ADRO will continue to improve operational excellence, focusing on efficiency and cost control. We estimate Net profit margins during 2022-2023 will average 22%
Debt under control
ADRO in 1Q22 managed to achieve a cash balance of USD 1,556 million while the total net debt to equity at the end of 1Q22 was net cash positive compared to 0.03x net debt in 1Q21. ADRO has a healthy balance sheet, with net cash in 1Q22 on the back of higher operating cash flows and carefully managed spending. During 1Q22, cash flows from operating activites increased 67% to USD 214 million, mainly driven by an increase in receipts from customers.
Valuation: 41% upside potential
We maintain our ADRO target price of IDR 4,095 which translates to a 10x PER. With 41% upside, we maintain our BUY recommendation.
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ADRO
