ADRO
Contact our analyst Revita
95% Upside, BUY
27th October 2021
Current price Rp1745
Target price Rp3410
52 Mt coal production target
ADRO’s 1H21 coal production reached 26.49 million tons, a decrease of 3% yoy compared to 1H20. Sales volume was 25.78 million tons, down 5% on an annual basis. Overburden removal (OBM) reached 115.22 million bank cubic meters (Mbcm) during 1H21 or up 12% yoy. This is in line with their target to increase the stripping ratio in 2021. The 1H21 Stripping ratio was at 4.3x vs the target of 4.8x. With rainfall starting to rise near the end of this year, we see a chance that the target will be missed. We estimate that 2021 and 2022 production will be similar while high coal price conditions will remain until early next year as the global economy continues to recover.
ADRO’s 1H21 coal production reached 26.49 million tons, a decrease of 3% yoy compared to 1H20. Sales volume was 25.78 million tons, down 5% on an annual basis. Overburden removal (OBM) reached 115.22 million bank cubic meters (Mbcm) during 1H21 or up 12% yoy. This is in line with their target to increase the stripping ratio in 2021. The 1H21 Stripping ratio was at 4.3x vs the target of 4.8x. With rainfall starting to rise near the end of this year, we see a chance that the target will be missed. We estimate that 2021 and 2022 production will be similar while high coal price conditions will remain until early next year as the global economy continues to recover.
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Improving operating performance
ADRO booked revenue of US$ 1,563 million in 1H21, up 15% yoy mainly due to a 25% higher average selling price (ASP) supported by stronger global coal prices. Higher than expected rainfall and rain hours in May and June affected ADRO mining operations during 1H21 but with operational efficiency and cost control, ADRO managed to book an EBITDA margin in 1H21 of 41%. Going forward, ADRO will continue to improve operational efficiency and cost control. We estimate EBITDA margins in 2021-2022F will average 36%.
Debt under control
ADRO in 1H21 managed to achieve a cash balance of US$ 1,208 million with total interest bearing debt at the end of 1H21 of US$ 1,690 million or a 2% increase yoy. ADRO continues to strengthen and maintain a healthy balance sheet, with net debt of US$ 305 million in 1H21. Total net debt/equity during 1H21 was 0,08x. We estimate net debt/equity in 2021F will be 0,06x.
Valuation: significant upside potential
With WACC at 10.9x, we are targeting ADRO to reach IDR. 3410 or trade at 37x PER with 95% upside. We maintain our BUY recommendation
ADRO booked revenue of US$ 1,563 million in 1H21, up 15% yoy mainly due to a 25% higher average selling price (ASP) supported by stronger global coal prices. Higher than expected rainfall and rain hours in May and June affected ADRO mining operations during 1H21 but with operational efficiency and cost control, ADRO managed to book an EBITDA margin in 1H21 of 41%. Going forward, ADRO will continue to improve operational efficiency and cost control. We estimate EBITDA margins in 2021-2022F will average 36%.
Debt under control
ADRO in 1H21 managed to achieve a cash balance of US$ 1,208 million with total interest bearing debt at the end of 1H21 of US$ 1,690 million or a 2% increase yoy. ADRO continues to strengthen and maintain a healthy balance sheet, with net debt of US$ 305 million in 1H21. Total net debt/equity during 1H21 was 0,08x. We estimate net debt/equity in 2021F will be 0,06x.
Valuation: significant upside potential
With WACC at 10.9x, we are targeting ADRO to reach IDR. 3410 or trade at 37x PER with 95% upside. We maintain our BUY recommendation
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ADRO
