Adaro Energy - FY10 results ? weak results from bad weather - Credit Suisse

● ADRO reported FY10 earnings at Rp2.2 trillion, approximately 18% below consensus and 4% above our forecasts, a 6% decrease QoQ and a 40% decrease YoY. Revenue was in line with consensus, approximately 2.5% above our forecasts, an 8.6% QoQ increase and a 4.5% YoY decrease.

● The QoQ decrease in profit is primarily due to higher costs in 4Q10 from higher strip ratio, increasing overburden hauling distance, rising fuel costs and other weather-related costs. We expect costs to remain high in 2011 given rising fuel prices.

● We believe ADRO is still attractive in the medium term given its plan to double production by 2014-15, supported by growing demand in low-rank coal. However, we expect short-term pressure on the stock given potential further earnings downgrades from higher costs as ADRO is recovering from bad weather.

● We trim our target price to Rp2,600/share, based on 18x 2011E (12.7x 2012E), and our 2011/2012 EPS estimates by 1-4%. We maintain our NEUTRAL rating on the stock, but we believe further pressure pushing the share price below Rp2,100/share might be considered a buying opportunity.