Corporate Result Flash Adaro Energy - Bahana

4Q10 performance
§ ADRO’s 4Q10 earnings fell 6% q-q to IDR511b, bringing full-year net profit to IDR2.2t (-50% y-y), some 17% lower than our and consensus estimates.
§ In 4Q10, revenues were up 8.6% y-y while COGS jumped 23% q-q translating to gross profit decline of 20% q-q. Costs increased significantly on higher stripping ratio as well as lower production in 4Q10. Additionally, opex grew 22% q-q, translating to operating profit of IDR1.3t (-26% q-q).
§ At the operating profit level, the results were within expectations forming about 96-98% of our and consensus estimates respectively. The company booked demurrage cost of IDR172b in 2010 due to bad weather, which dragged down 2010 net profit below our and consensus expectations.

Outlook
In 2011, the company should benefit from both higher volumes and selling prices. We use production of 46.5m tons (+9.1% y-y), ASP of USD69.4/ton (+18% y-y) and cash cost of USD45.3/ton (+11.2% y-y). This translates to net profit of IDR4.0t (+84% y-y).

Recommendation and valuation
While we expect some earnings adjustments due to the spill over effect from 2010, we will broadly maintain our earnings for 2011. ADRO has underperformed the index by 11% ytd despite high coal prices. At this stage, we think the lower than expected 2010 results are already reflected in the share price. We maintain our DCF based TP of IDR3,050 and our BUY rating on ADRO, the largest cap stock in the sector with high liquidity, on strong growth in 2011.