ITMG
Contact our analyst Revita
Targeting 6% upside. HOLD
3rd June 2020
Price Rp 8475
Target price Rp 8960
3rd June 2020
Price Rp 8475
Target price Rp 8960
Targetting -13% sales volume growth
Despite the current difficult conditions, ITMG is on track to achieve their coal production target with 4,5 millions tons of coal in 1Q20, 23,6% of the target 23,6 millions tons in 2020. We expect this strong performance to continue. In 2Q20, with a lower strip ratio of 10,5x compared to 10,7x in 1Q20. In terms of sales, ITMG has set a sales volume target of 22 millions tons -13% yoy from 25,3 millions tons in 2019FY. In 1Q20, ITMG sold 5.8 million tons of coal which was sold in China (1.6 million tons), Japan (1.5 million tons), Indonesia (0.7 million tons), Bangladesh (0.5 million tons), Thailand (0.4 million tons), India (0.3 million tons), Philippines (0.3 million tons) and other countries in East and Southeast Asia. During 1Q20, ITMG had a 17% lower average selling price of USD 58.7 from USD 71.1 per ton a year ago. The sharp drop in coal prices was due to seasonally lower coal demand, further impacted by the pandemic. As a result, net income shrank 62% to USD 15 million in 1Q20 from USD 39 million in 1Q19. With most sales as exports (average 86%) and a lower coal price estimate, average net income growth during the next two years will be -6,34% CAGR.
Despite the current difficult conditions, ITMG is on track to achieve their coal production target with 4,5 millions tons of coal in 1Q20, 23,6% of the target 23,6 millions tons in 2020. We expect this strong performance to continue. In 2Q20, with a lower strip ratio of 10,5x compared to 10,7x in 1Q20. In terms of sales, ITMG has set a sales volume target of 22 millions tons -13% yoy from 25,3 millions tons in 2019FY. In 1Q20, ITMG sold 5.8 million tons of coal which was sold in China (1.6 million tons), Japan (1.5 million tons), Indonesia (0.7 million tons), Bangladesh (0.5 million tons), Thailand (0.4 million tons), India (0.3 million tons), Philippines (0.3 million tons) and other countries in East and Southeast Asia. During 1Q20, ITMG had a 17% lower average selling price of USD 58.7 from USD 71.1 per ton a year ago. The sharp drop in coal prices was due to seasonally lower coal demand, further impacted by the pandemic. As a result, net income shrank 62% to USD 15 million in 1Q20 from USD 39 million in 1Q19. With most sales as exports (average 86%) and a lower coal price estimate, average net income growth during the next two years will be -6,34% CAGR.
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Continued strategic planning
ITMG has prepared a Business continuity Plan to anticipate a longer impact from the pandemic. ITMG has mapped issues that may arise and prepared an appropriate response. This plan includes sales and logistics, mine operations, and finance and admin. ITMG will control cash expenditure by cutting costs in each department and is ready to reduce costs further if needed. As of 1Q20, production costs were 48,7 USD/tons -11% yoy, +16,2% QoQ, inline with production growth. We believe a lower strip ratio, lower fuel costs from a low oil price and further cost cutting, will help ITMG to reduce the cost of production to help manage the current conditions.
Valuation: 6% upside potential
We have a TP for ITMG of IDR 8960, meaning the share is valued at 6,04x PER with 6% potential upside. We recommend HOLD.
ITMG has prepared a Business continuity Plan to anticipate a longer impact from the pandemic. ITMG has mapped issues that may arise and prepared an appropriate response. This plan includes sales and logistics, mine operations, and finance and admin. ITMG will control cash expenditure by cutting costs in each department and is ready to reduce costs further if needed. As of 1Q20, production costs were 48,7 USD/tons -11% yoy, +16,2% QoQ, inline with production growth. We believe a lower strip ratio, lower fuel costs from a low oil price and further cost cutting, will help ITMG to reduce the cost of production to help manage the current conditions.
Valuation: 6% upside potential
We have a TP for ITMG of IDR 8960, meaning the share is valued at 6,04x PER with 6% potential upside. We recommend HOLD.
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