Tambang Batubara Bukit Asam (PTBA-BUY-IDR20,800-TP:IDR29,600) Minor adjustment - Bahana

Solid 1Q11 results: Higher selling prices & lower COGS
Despite seasonality, PTBA reported 1Q11 earnings which were solid with net income up 104% y-y and 23% q-q, relatively in line with our and consensus’ full-year estimates (around 20%). On the back of lower production due to weather disruptions, we expect 1Q performance to be the weakest, forming just 22% of full-year estimate. Note that 1Q10 accounted for only 18.6% of 2010 full-year net profit. Revenues grew 30% y-y and 15% q-q driven by higher selling prices. Domestic ASP grew 29% y-y and 21% q-q to IDR742/ton while export ASP grew 54% y-y or 31% q-q to USD87.7/ton. However, sales volumes declined 4% y-y to 3.1m tons mainly caused by sales volume from trading activities as production was up 16% y-y to 3.0m tons. Bucking the industry trend, PTBA’s COGS fell 0.3% y-y despite rising oil price, partially due to 2% y-y lower stripping ratio to 3.52x.

Approvals required for railway and power projects
The 307km Rajawali railway project’s second alignment design draft, submitted in mid December 2010 was supposed to obtain approval in 1Q11, but is now delayed till 2Q11. Following the approval, land acquisition will commence, expected to take 1-1.5 years for 100% land acquisition with railway construction starting in mid 2012, assuming a minimum 50% land is acquired. EPC contract for the Rajawali project worth USD1.3b should be completed by mid of 2015. On the 270km Adani project, feasibility study should be completed in August 2011, followed by design creation, tendering out EPC contractor and financing. The license approval for this project should take less time (i.e. about 6 months) than the Rajawali project as the railway passes through only one province, requiring approval of only South Sumatra province. On the flip side, the Rajawali project requires approvals from 2 provinces, South Sumatra and Lampung, as well as approval by the central government. Additionally, the land acquisition for this project would be faster (6-12 months) due to the shorter distance and government support, as the South Sumatra province has a 2% stake in the joint venture. The initial target for capex over a 3-year construction period is USD1.6b. On the 200MW Banjarsari power project, PTBA already receives new electricity tariff approval from the ministry in February 2011 from USD0.0389/Kwh to USD0.056/Kwh (+44%). Construction to start mid 2011 with a 3-year completion period.

TP unchanged on marginal cut in DCF equity value; Retain BUY
We note that PTBA’s extension of existing railway projects has been delayed, as the 6 locomotives expected to come in June 2011, will now only arrive in September 2011. We expect this will result in lower 2011 train transportation capacity, down from 13.25 to 12.5m tons. Hence, we have adjusted our production down by 7% from 15m tons to 14m tons. This, however, is slightly offset by our lower cost assumptions on the back of the company’s 1Q11 results, resulting in 5% cut in 2011 net earnings. Thus, with only a marginal cut in DCF equity value, we retain our TP at IDR29,600/share. BUY.