Resource Alam Indonesia (BUY, TP IDR4,625); FY10 Results Review - Closing 2010 on a Convincing Note

KKGI reported FY2010 earnings of IDR166bn, surging by a whopping 418% y-o-y, which was in line with our estimate.

Strong topline growth. KKGI’s revenue climbed 138% y-o-y to IDR969bn, driven by higher sales volume as well as average sales prices (ASP). 2010 coal sales volume totaled 2.2m tonnes, up 133% from 0.9m tonnes in 2009. In addition, ASP also edged up to USD48/tonne, 19% higher compared to the 2009 ASP of USD40/tonne. On the contrary, its production cash cost declined by 16% y-o-y to USD24/tonne as the larger economies of scale in production gave rise to better efficiency. However, we estimate that the cash cost in 2011 will be higher due to a higher fuel price and larger production volume.

Outlook for 2011 remains promising. With contribution from the newly producing blocks at its mine concession, we estimate that KKGI’s sales volume will jump 63% y-o-y to 3.5m tonnes in 2011. We also envisage the company’s ASP increasing by 17% y-o-y to USD56/tonne given that the stubbornly high global coal price benchmark will give it more leverage to garner higher contract prices.

Balance sheet position stays strong. At the end of 2010, the company had a total cash balance of IDR131bn. Assuming a dividend payout ratio of 40%, this will translate into a dividend per share of IDR66, which in turn provides a dividend yield of 2%.

Reiterate our BUY call. Given the strong 2010 results, we are maintaining our bullish stance on the counter. We retain our BUY call with a TP of IDR4,625, which offers a 26% upside potential. At present, the counter is still trading at an undemanding multiple of 9x 2011f earnings compared to the industry’s consensus average of 15.4x