Harum Energy (HRUM-BUY-IDR9,350-TP:IDR11,900) Sector’s highest growth - Bahana

2011: Net profit to jump 111% y-y on high0065r production and ASP
We expect Harum Energy (HRUM) to book 2011 production of 10.5m tons (+42% y-y), the highest growth amongst the coal stocks under our coverage, partially driven by lower base. Total cash cost per ton will grow by 13% y-y, inline with other companies in our coal basket to USD57/ton primarily on the back of 12% y-y higher fuel cost assumption to USD95/barrel. Separately, we have raised our coal benchmark price assumption from USD115 to USD120, also inline with other companies we cover. This translates into ASP of USD94, which is not only higher than HRUM’s guidance of about USD88-92, but is also the highest in the sector. Spill over effect as well as higher benchmark price results in 2011 revenues of IDR7.5t (+67% y-y) and 2.1% net increase (exhibit 6) to IDR1.7t (+111% y-y).

4Q10: Higher volumes; ASP up marginally
HRUM booked strong growth in 4Q10 revenues, supported primarily by higher sales volumes of 2.3m tons (+27.8% q-q) as ASP was up marginally by 0.2% q-q to USD82.2/ton. In 4Q10, stripping ratio fell 6.8% q-q to 11.0x causing cash cost to drop 0.2% q-q to USD40.9/ton. Despite cash cost per ton going down in 4Q10, the 44% q-q increase in production to 2.3m tons resulted in higher COGS. Nevertheless, 4Q10 revenues were up 20% y-y while COGS increased at lower rate of 14% y-y translating to 34% q-q growth in gross profit. For the full-year 2010, revenue growth in USD terms of USD444m (+11.2% y-y) was backed by 5% y-y higher sales at MSJ mine (SB mine is not consolidated) to 6.3m tons as well as 5% y-y increase in ASP to USD75.7/ton. Separately, production cash cost reached USD38.1/ton (+7% y-y), attributable primarily to 30% y-y higher fuel cost per liter. In addition, the adjustment made to the contractors’ tariff structure in mid 2010 also contributed to higher per unit overburden removal cost. This resulted in operating profit having contracted 6.5% y-y, in line with consensus estimate, but some 8% lower than our full-year estimate. On the bottom line, HRUM reported 4Q10 net profit of IDR255b (+28% y-y) bringing full-year net profit to IDR824b (+7.4% y-y), coming inline with our (106%) but some 10% below consensus. 4Q10 net profit was supported by income from associates which jumped 11 folds y-y to IDR32b, reaching IDR132b for the full-year, up 19 folds. This primarily resulted from Santan Batubara mine’s higher contribution.

27% upside potential on robust earnings; BUY with IDR11,900TP
HRUM’s share price has increased 80% since its IPO, outperforming the market by 3.2% ytd (exhibit 5). However, based on our DCF-based (WACC:12.0%) valuation, we believe there is still 27% upside from current share price level to our target price (TP) of IDR11,900. We continue to like the stock based on the company’s robust earnings growth, 2011 aggressive production capacity as well as strong financial performance. BUY.