PTBA:Trainspotting - Mandiri Sekuritas

Market applauded the price PTBA secured with PLN, which proved to be higher than previously thought. However, concern is on volume. Volume expansion depends on the 26% increase of coal transported by train from 10.8Mt in FY10 to 13.6Mt. Based on our assessment, in FY11 it could only add 1.4Mt or half of what they are currently estimating. Lower volume and lower margin on higher expenses prompted our earning downgrades. We upgrade our call to Buy, but downgrade our target price (from Rp24,300). Despite delays and downgrades, PTBA remains an attractive counter with the lowest EV/reserves of US$2.4/ton compares to its coal peers.

Within expectation FY10 results. FY10 net income result was 102% of our estimate, and 93% of consensus. But that was history. More interesting is the price they obtained for their FY11 coal supply to PLN, state-owned electricity company. PTBA obtained FOB price of Rp740,211/ton (US$82.2/ton) for 4,900 kcal/kg GAR (BA59). The price is based on March 2011 Indonesia Coal Reference Price (ICRP) of US$122/ton, higher than PLN initial demand for average October-December 2010 ICRP of US$97.2/ton. The deal gave assurance of PLN acceptance of market price without invoking ‘populist’ pressure.

Expecting 6 locomotives in August 2011. PTKA is expecting 6 EMD-General Motor BB301 series in August 2011, more powerful than what they currently owned. The 6 locomotives are part of the 10 units they have ordered. BB301 can carry up to 50 cars, 30 ton of coal each, longer than 30-40 cars per train, PTKA currently operated. We doubt the new locomotives can help add 2.8Mt of coal transported. Assuming 2 locomotives per train, Tanjung Enim – Tarahan distance of 491km, speed of 90 km/hr or 2 round trips per day, we estimated additional capacity at 1.4Mt. The deployment to Kertapati (159km) might add more capacity, however the infrastructure might not s upport e specially Ampera bridge crossing.

Snag in Transpacific railway projects. Our channel check reveals the disagreement between Rajawali Group (80% ownership in the project) and China Railway (10% ownership) on the procurement process. While Rajawali insists on open tenders, China Railway wants direct appointments using China suppliers. Although the project itself is still on the land acquisition process, deadlock will create potential delay.