Key takeaways from analyst meeting (ADRO, Rp2,525, Buy, TP: Rp2,800) - Mandiri

􀂄 Yesterday, Adaro held an analyst meeting with an interactive dialogue with top management includes Mr. Garibaldi Thohir (CEO of Adaro) and Ario Rachmat (VP Director of Adaro). It is followed by site tour today to Tutupan and Wara mine. Some key highlights from the meeting are as follows:
􀂄 2Q11 coal production will remain on track and is expected to be higher than 1Q11 production of 10.6Mt. We expect 3-4%qoq growth up to 10.8-11Mt, which will translate into around 21.6Mt production in 1H11, representing 45-46% our FY11F of 47Mt, considerably in line expectation.
Weather has been normal, and we expect production growth in 2H11F
􀂄 With regard on its 2x1,000MW power plant project in Pemalang, Central Java, worth US$3.5bn, Adaro made an attractive financing scheme through "equity bridging loan". It will only need 2 months EBITDA or around US$240mn(34% out of 20% equity portion from the consortium of JPower and Itochu) for Adaro's equity portion. The remaining 80% will be financed through debt without recourse term from JBIC, at a very low rate debt (learn from ANTM's CGA project, JBIC could finance at LIBOR+2%) and long tenor up to 25 years. Equity injection will start after it commences operation with expected 4 years construction. It will require 7-8Mt Wara coal. With indicated tariff of US$5.7cent/kwh, assuming 7,000hours operation in a year (80%utilization rate), it will translate into US800mn revenue. Financial closure is under finalising process and will be announced in August 2011.
􀂄 "Pit to power" business model will be Adaro's future key strategic plan to enhance its value supply chain and diversify its cashflow stream, benchmarking to Shenhua- fully integrated state owned mining company in China, that has huge market cap and attract a lot of global investor. Beside Pemalang project, Adaro is also eyeing 2 other power plant project in Banten and South Kalimantan. The main reason Adaro get into power plant business is to increase its Wara coal's competitiveness in seaborne coal market.
􀂄 Good progress on Maruwai project with BHP is that exploration permit has been obtained, but logistic-transportation remains the concern. The most efficient and effective cost option to carry out the coal is still under feasibility study.
􀂄 Adaro indicated that there will be 2 coal assets acquisition that will be announced soon sometimes in late 3Q11 or early 4Q1. Currently it's under finalising process.
􀂄 Currently we have Buy rating on the stock, ADRO is traded at PER11F-12F of 16.1x-2.4x.