JP Morgan Indo PTBA pricing risk highlighted

The management of PLN, the state electricity company, told Kompas reporter that they have not agreed on thermal coal price contract for year 2011.  The benchmark coal price issued by the energy ministry showed rising price trend: US$92.68 in October, US$95.51 in November, US$103.41 in December, and US$112.41 in January 2011.

But PLN’s energy director, Nur Pamudji, in his press statement yesterday (13-Jan) said that the company wants to utilize decree no 17/2010 that was issued by energy ministry, allowing them to set 2011 contract price using the average benchmark price in 4Q10. (Kompas, 14 Jan 2011).

My take – Yesterday, Stevanus Juanda (analyst) raised his year 2011 ASP assumption for PTBA, from US$81.6/ton to US$92.4/ton, compared to year 2010 ASP forecast of US$68.0/ton. On his new forecast the stock trades on 16.1x 2011 P/E, versus peer average of 15.1x. His FY10 EPS is 9% below consensus, while his FY11 EPS is 5% below.

His US$92.4/ton ASP assumption could be at risk given the comment from PLN director, as PLN is the biggest buyer in domestic coal market. Implied from Steve’s FY10 forecast is the ASP of US$72.8/ton for 4Q10. If PLN wins the case and use 4Q10 ASP to price its coal for year 2011, the realized ASP can be more than US$10/ton lower (vs Street’s assumption) for PTBA.

Steve rates PTBA O/W and top pick, but on a rising coal export price environment my personal preference goes to the more leveraged plays and INDY.