When the dust settle down. Economic impact, Coal sector, Astra Int. - Nomura Indonesia

Indonesia is an important source of natural resources for Japan. Our economics team highlights that although Japan is one of the largest export destinations of Indonesia (15.9% of Indonesia’s export); most of the exports are materials and commodities that will be much needed for Japan’s reconstruction effort. Thus net impact to Indonesia is likely positive in the medium to longer term.

Nomura global mining, utilities, and oil teams have done coordinated efforts to assess the impact of the 15.7GW loss in nuclear generating power capacity on additional demand of other sources of energy in Japan. We believe that the lost nuclear capacity will be replaced by thermal power and we note that the largest surplus capacity in the country is available in oil-fired power plants, but owing to the cost differential as well as environmental impact, the country would try to run the coal and LNG plans at full capacity and balance the remaining outage by burning oil. If we assume the same reaction as in the Kobe earthquake of 2005, we forecast that coal demand in Japan will increase by 6.5mn tons (5% increase) vs. current import levels of 132mt estimated for 2011. Since we already forecast a 68mt supply deficit in the global seaborne thermal coal in 2011, we expect additional upward pressure on thermal coal spot prices. We believe the pecking order in Indonesian coal sector to play the recovery sector is as follows Harum Energy (HRUM IJ), Indo Tambangraya Megah (ITMG IJ), Bumi Resources (BUMI IJ), Adaro Energy (ADRO IJ) and Tambang Batubara Bukit Asam (PTBA IJ).

We reiterate our BUY recommendation on Astra International. The risk of supply disruption is diminishing as Daihatsu confirmed that there will be no production disruption (Daihatsu produces about half of cars sold by Astra including some of Toyota’s brands). Astra also expect no major disruption on parts supply from Toyota Japan although no confirmation from Toyota yet. The risk of supply disruption so far comes from Komatsu Japan from which United Tractors (60% owned by Astra) imports about 30% of its heavy equipments sold in Indonesia. We estimate profit from equipment imported from Japan accounts for about 7.5% of UT’s profit and 4.5% of Astra’s profit. Note that UT holds about 2 months inventory of Komatsu equipments, thus immediate impact will be limited. Komatsu equipment sales were up 93% yoy to 1,418 units in 2m11 (see chart below).

“TMC has decided to continue its domestic vehicle-production halt—at TMC production plants and at subsidiary vehicle manufacturers—until the end of March 22. We have yet to decide when vehicle production will resume. Separately, in an effort to aid the repair of vehicles already on the market, we are planning to restart production of replacement parts on March 17. And to keep production lines moving overseas, we are planning to restart production of parts for overseas production (including knockdown parts) on March 21.” (March 16, 2011: Toyota Motor Corporation.