Tambang Batubara Bukit Asam - 1H11 results are strong and in-line - JP Morgan

· 1H11 results are strong and in-line: PTBA reported 1H11 net income of Rp1,611bn, up 77% from Rp908bn in 1H10. Historically, the 1H contributes about 48% of the full year profit; the reported 1H11E net income is in-line with both JPM’s (46%) and consensus’ (45%) FY11E full year forecasts of Rp3,518 bn and Rp3,560 bn respectively. In summary, 1H11 results are strong as operating profit and net income grew by 89% and 77% Y/Y respectively.

· Driven by pricing; while volumes were flat: The strong result in 1H11 and 2Q11 was driven by ASP rather than volume. Sales volume was flat; up 1.5% in 1H11 and up a mere 7% in 2Q11. ASP however rose by 33% in 1H11, from Rp587,500/ton in 1H10 to Rp781,200 in 1H11. In 2Q11, it rose by 30%: from Rp619,600/ton in 2Q10 to Rp807,600 in 2Q11. In addition, ASP rose by 7.5% Q/Q driven by strong realized price in exports: up strongly from US$88/ton in 1Q11 to US$99 in 1H11; implying that average export ASP is US$108/ton in 2Q11.

· FY11E should be a strong year: Going forward, we believe that the strong performance should persist into 2H11 on the back of strong realized ASP from both export and domestic markets. For FY11E, we forecast that operating profit and net income will grow by 111% and 75% Y/Y. The forecast net income of Rp3.5 trillion represents the highest NI that PTBA has ever earned. In addition, we expect further progress in the expansion of the existing railway (which has started) and land acquisition for the Transpacific railway will be strong catalysts for the stock.

Maintain OW and June-12 PT of Rp31,000: Given the potential strong performance in 2H11, we continue to like PTBA and maintain our OW rating and June-12 PT of Rp31,000 on the stock. The risks to our view and PT areinclude execution risk and project delays.