ITMG
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Targeting 20% upside. Buy
16th December 2021
Price Rp 20,325
Target price Rp 24,385
16th December 2021
Price Rp 20,325
Target price Rp 24,385
Lower production
ITMG’s 9M21 coal production declined-3.6% YoY to 13.30mn tons from 9M20’s 14mn tons. In 3Q21, production was below target due to heavy rainfall, like last year, which affected all mine sites. But in 4Q21, output is expected to increase to 5,5mn tons assuming the weather condition is manageable at 2 of ITMG sites, Trubaindo and Bharinto. We estimate 2021 production will decline to 18.5 mn tons or down -21% YoY from 2020. In terms of sales, in 3Q21, ITMG sold 14.8 million tons, a decrease of -3.9% YoY with sales to China (28%), Japan (14%), Indonesia (21%), Bangladesh (6%), Thailand (7%), India (3%), Philippines (10%) and other countries in East and Southeast Asia. During 3Q21, ITMG average selling price was USD 89, up from USD 53.80 per ton a year ago. The sterngthening price in 3Q21 is due to strong demand combined with tight supply particlarly from late August to September. ASP in 4Q20 is expected to continue the up trend. We maintain our sales and production volume targets for 2021F together with a significant adjustment in ASP. We expect 2021-2022, exports will improve as the global economy improves. We estimate revenue in 2021F will increase significantly due to a higher average selling price (ASP) while 2022F revenue will be lower as we estimate coal prices will decline YoY.
ITMG’s 9M21 coal production declined-3.6% YoY to 13.30mn tons from 9M20’s 14mn tons. In 3Q21, production was below target due to heavy rainfall, like last year, which affected all mine sites. But in 4Q21, output is expected to increase to 5,5mn tons assuming the weather condition is manageable at 2 of ITMG sites, Trubaindo and Bharinto. We estimate 2021 production will decline to 18.5 mn tons or down -21% YoY from 2020. In terms of sales, in 3Q21, ITMG sold 14.8 million tons, a decrease of -3.9% YoY with sales to China (28%), Japan (14%), Indonesia (21%), Bangladesh (6%), Thailand (7%), India (3%), Philippines (10%) and other countries in East and Southeast Asia. During 3Q21, ITMG average selling price was USD 89, up from USD 53.80 per ton a year ago. The sterngthening price in 3Q21 is due to strong demand combined with tight supply particlarly from late August to September. ASP in 4Q20 is expected to continue the up trend. We maintain our sales and production volume targets for 2021F together with a significant adjustment in ASP. We expect 2021-2022, exports will improve as the global economy improves. We estimate revenue in 2021F will increase significantly due to a higher average selling price (ASP) while 2022F revenue will be lower as we estimate coal prices will decline YoY.
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lower costs
ITMG has controlled spending by cutting costs in each department during the pandemic. As of 3Q21, production costs were 41.5 USD/tons -3% yoy, but +3.5% QoQ because of the heavy rainfall. ITMG plans to maintain a lower strip ratio during 4Q21. We believe a lower strip ratio, lower fuel costs from a lower oil price and further cost cutting, will help ITMG to further reduce the cost of production.
Trial Production at GPK
ITMG acquired PT Graha Panca Karsa (GPK) in 2020 in order to expand the company’s coal asset portfolio. GPK will produce low CV coal in its East kalimantan concession. GPK is expected to reach production of 3mn tons/annum in the medium to long term with a strip ratio of 4-5x and is expected to start trial-production during late 4Q21 at approximately 10 Ktons
Valuation: 20% upside potential
We have a TP for ITMG of IDR 24,385, which would mean the shares valued at 10x PER with 20% potential upside. We recommend BUY.
ITMG has controlled spending by cutting costs in each department during the pandemic. As of 3Q21, production costs were 41.5 USD/tons -3% yoy, but +3.5% QoQ because of the heavy rainfall. ITMG plans to maintain a lower strip ratio during 4Q21. We believe a lower strip ratio, lower fuel costs from a lower oil price and further cost cutting, will help ITMG to further reduce the cost of production.
Trial Production at GPK
ITMG acquired PT Graha Panca Karsa (GPK) in 2020 in order to expand the company’s coal asset portfolio. GPK will produce low CV coal in its East kalimantan concession. GPK is expected to reach production of 3mn tons/annum in the medium to long term with a strip ratio of 4-5x and is expected to start trial-production during late 4Q21 at approximately 10 Ktons
Valuation: 20% upside potential
We have a TP for ITMG of IDR 24,385, which would mean the shares valued at 10x PER with 20% potential upside. We recommend BUY.
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