PTBA Given The Benefit of The Doubt - Batavia

• Significant increase of 1Q11 net profit
PTBA recorded significant increase in 1Q11 net profit. This increase was a result of raising average sales price for domestic sales and export sales. PTBA’s net profit rose by 104% y-o-y to IDR760 billion reflecting 29% of our net profit valuation for full year 2011. Average domestic sales price on 1Q11 was IDR743,000 per tonne or increased by 29% y-o-y, while average export sales price increased 54% to U.S. $ 88 per tonne.

• Relatively stable q-o-q sales volume in 1Q11
1Q11 sales volume was 3.1 millions tones, relatively similar to 1Q10’s. The largest sales portion came from the 5,900-kcal coal that is used as fuel for power plant. We expect PTBA to increase the sales volume in 4Q11 due to the arrival of 6 additional locomotives that can increase coal transport capacity. Hence FY2011 we gave PTBA the benefit of the doubt to achieve its sales volume target above 16 million tons.

• More than IDR 1 trillion of capital expenditure
PTBA allocated more than IDR 1 trillion of capital expenditure this year which will be used for several projects. The ongoing projects are Existing Railway Project that is expected to be completed in 2014, New Railway Project, and Banjarsari Mine Mouth PP 2x100MW (U.S. $ 239 million).

• Bullish on PTBA
We upgrade our target price based on DCF model to IDR 26,800, assuming the weather is conducive and the Existing Railway Project will increase the capacity of freight above 13 millions tonnes this year, up 23% from a year earlier. We expect potensial upside of 26% based on the current price of IDR 21,350.