ITMG’s 9M13 production and revenue were in line, while profit came in
at 71% of our FY13F estimate due to the omission of a non-operating expense.
3Q13 production rose 9% y-o-y (+4% q-o-q) and gross margin grew by 510bps q-o-q,
aided by lower strip ratios. Despite 2-6% lower strip ratios for FY14-15, we
reduce our profit estimates by 7-11% on including a new non-operating expense.
Maintain NEUTRAL, with a lower IDR27,050 TP (from
IDR27,900).
Lower
3Q13 strip ratio would be hard to sustain.
ITMG reported lower strip ratios in 3Q13 at its Indominco and Bharinto mines,
which are due to start operations in new pit areas. The company is guiding to
maintain similar strip ratios in 4Q13. We estimate strip ratios to increase as
coal production in the new pit areas increases. Nevertheless, our revised strip
ratios are lower than our earlier estimates. We lower our FY13-15 strip ratios
by 2-6%, resulting in a 2-3% drop in total cash costs.
Lower
FY14-15 earnings by 7-11%. Despite
lower strip ratios resulting in lower cash costs, we reduce our FY14-15 profit
estimates by 7-11% to account for: i) higher selling expenses, and ii) the
inclusion of a new non-operating expense, which was earlier excluded from our
estimates. We believe higher selling expenses will be needed as ITMG expands its
coal export destinations to India, the Philippines and Vietnam. ITMG’s plan to
diversify its export base was highlighted by Banpu (BANPU TB, BUY, TP: THB:
35.7), which owns a majority stake in ITMG.
Strong
cash flow, high dividend.
ITMG’s strong cash flow generation is evident from its ability to maintain
~USD300m of annual net cash in FY14-15, despite a total capex of USD264m and a
75% dividend payout, which translates into a sector-leading yield of 6.2-7.0%
over FY14-15. Our FY14-16 capex estimate includes the USD100m Bontang port
expansion, which ITMG has postponed for evaluation in
FY14.
NEUTRAL,
with lower IDR27,050 TP.
Aided by 7-11% lower profit estimates for FY14-15, we reduce our IDR27,900 TP to
IDR27,050, implying a 10x FY14 P/E. While coal restocking in China during 4Q13
might spark a short-term share price rally, we believe on a 12-month
perspective, ITMG’s stock looks fairly priced. Maintain NEUTRAL.
source: OSK Indonesia dated 19 November 2013
