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Jumat, 19 Agustus 2011

Bukit Asam (PTBA-BUY-IDR19,100-TP:IDR31,500) 2011-12: Growth through de-bottlenecking - Bahana

Higher capacity in existing railway to support 2011-12 coal volumes
Bukit Asam (PTBA) currently has 1.99b tons in total thermal coal reserves, the second highest in our coverage, although the company’s 2010 production volume has remained low at 12.5m tons (+7.4% y-y), the third lowest out of eight companies under our coverage. While PTBA continues to be plagued by lack of production caused by coal transportation bottleneck, we believe the company’s production volume will still be able to grow and reach 13.4m tons in 2011 (1H11: 6.2m tons), before slightly rising to 13.8m tons in 2012. This will be done through increased capacity of the existing railway (exhibit 7 & 8) by way of adding more wagons and locomotives. Over the longer run, PTBA’s future growth will be dependent on the completion of its new USD1.6b railway project with the Rajawali Group. Our recent meeting with PTBA’s management reveals that this Tanjung Enim to Bandar Lampung railway project with 25m tons transport capacity pa would be completed in 2H15. However, as this railway completion has always been delayed, we have assumed the railway to start operation not later than 2017 (exhibit 9).

Biggest beneficiary of strong domestic coal demand
We like the fact that PTBA sells more than 60% of its coal to local customers (exhibit 10), which is the biggest proportion within our coal coverage. In our view, this provides some cushion against external volatilities. In the next three years, we estimate PTBA’s domestic sales will contribute 64% of total sales, allowing domestic sales volumes to grow on average 7% pa (exhibit 11). Note that in the past seven years (exhibit 12), Indonesia’s coal consumption had grown 14% on average pa, to reach 88m tons in 2011, according to the Ministry of Energy and Mineral Resources (ESDM). Going forward, this strong domestic coal consumption will be supported by higher demand stemming from the completion of PLN’s 2x10,000MW power projects. On the sales volume front, we expect PTBA to book 2H11 sales volumes of 8m tons (1H: 6.5m tons +2% y-y), up 23% y-y and accounting for 55% of our full-year estimate of 14.5m tons, lower than the company’s target of 16mt. In 2012, we expect sales volumes will slightly rise to 14.8m tons on higher railway transport capacity, production growth from IPC (Kalimantan-based coal mine subsidiary) and higher third-party purchases.

23.7% ytd underperformance + 65% upside = BUYing opportunity
10.7% share price drop since market peaked on 1 August and 23.7% ytd market underperformance (exhibit 5), should be viewed as a buying opportunity on PTBA in our view. We apply our new 2012-13 benchmark coal price assumptions of USD125-130/ ton respectively on PTBA, translating to substantially higher earnings in 2012-13 (exhibit 6). This and as we roll over using PTBA’s 2012 valuation, we come up with our new DCF-based target price (TP) of IDR31,500, using 13% WACC and 1.5% terminal growth. As this translates to 65% share price upside potential from current share price level, we reiterate our BUY recommendation on PTBA.

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