● Adaro reported net profit of US$346
mn in 9M12, down 8% YoY, lower than our and market expectations on lower
volumes and prices. Both sales and production volumes were down YoY and QoQ.
● The company managed to sell its coal
at a reasonable good price in 6M12 resulting a 3% YoY increase in ASP to
US$73/t. However, the selling price had to fall to US$69/t in 3Q12, down 8%
QoQ, following the weakness in the international coal market.
● Costs also increased on a
higher-than-expected strip ratio.
However, the
company has undertaken some cost-efficient programmes including building
conveyer belts to reduce overburden hauling costs, coal-fired mine mouth power
plant, and expansion of the river port.
● We trim our earnings forecasts for
Adaro on lower coal price assumptions. This has brought our TP down by 6% to
Rp1,500. We retain our NEUTRAL. Key risks to our valuation and rating are
lower-than-expected
volumes and coal prices.
Source: Credit Suisse dated 1 Nov 2012
