1Q13 Net Income Slumps 66%
The company posted 1Q13 revenue of US$741 mn or declined 19% YoY on the back of flat volume and weaker global coal price. During the period, sales volume slightly declined by 0.2% to 11.2 mn tons while ASP contracted by 18% YoY after declining average global coal price by 20% to US$90.6/ton. Since COGS dropped less than revenue (down 5% to
US$583 mn), gross profit contracted by 48% to US$158 mn and dragged gross margin down from 33% to 21%. On the operating side, operating expense only declined 14% to US$37 mn due to higher G&A expenses of 22% to US$30 mn. As result, operating income fell 53% to US$121 mn. Conclude the results; net income slumped by 66% to US$41 mn.
The results came below our FYE13 forecast as only cover 19% and 8% of our FYE13 revenue and net income. Despite lower 1Q13 performance, we still maintain our assumption as weaker coal price trend, which addressed to ADRO’s performance, is about to end since 1Q13 average coal price has picked up to US$90.6/ton from 4Q12 of US$85.5/ton.
Additional Reserve from Recent Acquisition
The company has added new 172.3 mn tons coal reserves from the recent corporate action of its subsidiary, PT Alam Tri Abadi (ATA), which has signed a share purchase agreement to acquire 75% stake of three companies that involved in Balangan coal project named PT Paramitha Cipta Sarana (PCS), PT Semesta Centramas (SCM), and PT Laskar Semesta Alam (LSA) from PT Terminal Batubara Indah, PT Industri Terminal Batubara, and PT Harapan Insani Millenia respectively with a total value of Rp3.9 bn (equals to US$405,311). The Balangan coal project is located 11 km southeast Adaro Indonesia’s concession in South Kalimantan. Covered as wide as 7,500 Ha, it gains operation and production license for 20 years since 2008 (PCS and SCM) and 2009 (LSA). Through this acquisition, total coal reserve will reach more than 1 bn tons, which expand its lifetime longer. Production at Balangan itself is expected to start around end of this year with production volume target of 8 mn ton/year.
Maintain BUY Rating with Rp1,630/Share
We are still optimistic that coal price will recover this year as signaled by higher average price in 1Q13 compared to 4Q12. Assuming no change on our valuation, we maintain our BUY Rating with TP of Rp1,630/share. Currently, the counter is traded at PER’13-14 of 8.2-6.2x or higher/lower than average PER’13-14 of 9.6-9.0x. Owing an upside potential of 36%, current price decline offers and opportunity to gain attractive dividend yield of around
1% from final dividend of US$40.3 mn ~ US$0.00123/share (Rp12.25/share using Rp9,720/US$1) that will be paid on June 12, 2013. Cum date is on June 3, 2013.