sector update report - mnc sekuritas · revision are very facilitating towards coal companies as it...

Coal Price remains Relatively Stable Coal prices movement remains relatively stable, as shown in exhibit 1, compared to the volatility in the oil price as it used to graze the negative zone. Although, coal price has been decreasing steadily by 25.51% YoY/ 21.94% YTD with an average price of USD61.89/mt, we still see a dependency on this black commodity over the next few years, with China being the lead importers. Coal still dominated 59% within China’s energy mix in FY19 while their coal consumption increased to 3.83 billion tons. We revised down our coal price estimation to USD58.77/mt in FY20E as we see the rise in demand will not be significant, supported by the renewable energy takeover in the US consumption (with 11.5 quadrillion BTU vs 11.3 quadrillion BTU of coal in FY19). Deep Bottom-Line Contractions in 1Q20 Along with the Covid-19 outbreak that has hampered many industries in the economy, coal mining is no exception. As reflected in the performance of the companies within our universe coverage namely ADRO, ITMG and PTBA. Their top-line in 1Q20 tumbled by -11.34%/-19.23%/-4.02% YoY respectively, due to the decline in the coal price although sales volume by average rose by 2.50% YoY. Meanwhile, deeper contractions were shown in the bottom-line of ADRO (-17.36% YoY), ITMG (-61.24% YoY) and PTBA (-20.57% YoY) which are anticipated with the cut in revenues and the lack of efficiency in the cost strategy. Nevertheless, these performances are still in line with our estimates. Furthermore, these companies have distributed their dividends in 1H20 even though dividend yield from ADRO and ITMG were slashed from a double digit in the previous year (see exhibit 06). Law Revision as a Jumpstart for Mining Sector The House of Representatives has approved the amendment of Law No. 4 of 2009 concerning mineral and coal mining which includes: 1) Management and licensing authority, where the central government will have the authority on mineral and coal control; 2) Extension of operating license as some coal companies whose permit is almost expired will be granted an extension for 10 years; 3) Down streaming related to coal gasification and nickel processing; 4) Divestment for companies with foreign share ownership that will be beneficial for the divested companies as they will handle more SOE’s projects; 5) Community mining, reclamation and post mining. We believe this could became a catalyst for the mining sector despite the complications on social and environment matters. For this revision are very facilitating towards coal companies as it provide simplicity in mine permit and management. NEUTRAL Outlook with Top Picks: ADRO, ITMG and PTBA MNCS maintains its NEUTRAL recommendation for the coal mining sector. Still, considering the decline on coal companies stock prices such as ADRO (-21.43% YoY), ITMG (-58.89% YoY) and PTBA (-30.72% YoY) while the contraction in JAKMINE Index (-19.75% YTD) is not as deep as JCI Index (-21.19% YTD), we see potential upsides as we renew our recommendation for ADRO (BUY; TP: IDR1,310), ITMG (BUY; TP: IDR10,630) and PTBA (BUY; TP: IDR2,390).

COAL MINING SECTOR UPDATE Swing Trading Opportunity

Sources: Bloomberg, MNCS

Please see important disclaimer at the back of this report

Page 1 www.mncsekuritas.id MNC Sekuritas 1-500-899 [email protected]

SECTOR UPDATE REPORT MNC Sekuritas Research Division | June 29, 2020

Ticker Market Cap

(IDR bn) PER (x) PBV (x)

Rec. Target Price

(IDR) FY20E FY21F FY20E FY21F ADRO IJ 32,466 6.03 6.00 0.48 0.46 BUY 1,310 ITMG IJ 8,192 8.90 11.12 0.32 0.28 BUY 10,630 PTBA IJ 23,733 6.69 6.40 1.27 1.25 BUY 2,390

Research Associate Catherina Vincentia [email protected] (021) 2980 3111 ext. 52306

Sector Update Report | MNC Sekuritas Research Division



Exhibit 01. Coal Price is much more stable than Oil Price

Source : Bloomberg, MNCS

Exhibit 02. 1Q20 Top and Bottom Line Results

Source : Company, MNCS

Exhibit 03. 1Q20 Coal Sales and Production Volume

Company

Revenue (in IDR Billion) Net Income (in IDR Billion)

1Q19 1Q20 YoY

Growth

% of MNCS

Estimates 1Q19 1Q20

YoY Growth

% of MNCS

Estimates

ADRO IJ* 846.48 750.47 -11.34% 24.68% 118.80 98.18 -17.36% 29.73%

ITMG IJ* 453.03 365.90 -19.23% 28.44% 39.74 15.40 -61.24% 29.04%

PTBA IJ 5,336.97 5,122.49 -4.02% 27.57% 1,137.21 903.25 -20.57% 25.48%

*in USD million

Company Production (million ton) Sales (million ton)

1Q19 1Q20 YoY Growth 1Q19 1Q20 YoY Growth

ADRO IJ* 13.75 14.41 4.80% 13.35 14.39 7.79%

ITMG IJ* 5.8 4.5 -22.41% 6 5.8 -3.33%

PTBA IJ 5.7 5.5 -3.51% 6.6 6.8 3.03%


-60

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-20

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USD

Oil Price (per barrel) Coal Price (per metric ton)

Lowest level reaching -37.63 in April 2020




Exhibit 04. Indonesia is still leading the Thermal Coal Exports

Source : Coal Hub

Exhibit 05. China remains the main coal exporter

Source : Coal Hub

500450400350300250200150100

500

Indonesia Australia Russia Colombia SouthAfrica

US

Mill

ion

tonn

es

2018 2019s 2020f 2021f 2022f 2023z 2024z 2025z

Notes: s Estimate f Forecast z ProjectionSource: IHS (2020); IEA (2019) Coal Market Report; ABS (2019); Department of Industry, Science, Energy and Resources (2020)

0

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China Japan SouthKorea

Taiwan India Other Asia

EU28

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tonn

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2018 2019s 2020f 2021f 2022f 2023z 2024z 2025z

Notes: s Estimate f Forecast z ProjectionSource: IHS (2020); IEA (2019) Coal Market Report; Department of Industry, Science, Energy and Resources (2020)




Exhibit 06. ADRO, ITMG and PTBA dividend yield trend FY15—FY20


Exhibit 07. ADRO, ITMG and PTBA Stock Price Movements


Exhibit 08. JCI Index vs JAKMINE Index


6.38%

15.86%

12.86%12.68%

3.48%

12.32%13.32%

11.32%

9.23%

13.28%

22.29%

17.36%

3.78%

13.84%

11.90%11.35%

3.54%

11.00%

202020192018201720162015

ITMG PTBA ADRO

1,000

1,200

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1,600

1,800

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JCI Index JAKMINE Index (RHS)

JCI Index -21.19% YTDJAKMINE Index -19.75% YTD

0

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35,000

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ADRO Price PTBA Price ITMG Price (RHS)

ADRO -21.43% YoYPTBA -30.72% YoYITMG -58.89% YoY

(as of June 25,2020)




Exhibit 09. ADRO is currently traded at –1.36STD with PBV at 0.63x (3-year average)


Exhibit 10. ITMG is currently traded at –1.87STD with PBV at 0.65x (3-year average)


Exhibit 11. PTBA is currently traded at –1.61STD with PBV at 1.20x (3-year average)


0

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ADRO PBV Mean STD-1 STD-2 STD+1 STD+2

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ITMG PBV Mean STD-1 STD-2 STD+1 STD+2

00.5

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PTBA PBV Mean STD-1 STD-2 STD+1 STD+2




Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months

HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months

Not Rated : Stock is not within regular research coverage

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sector update report - mnc sekuritas · revision are very facilitating towards coal companies as it...

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