Indo Coal: FY2010 Review- BORN/ADRO Above, PTBA In-line, ITMG Below - Credit Suisse

1) BORNEO LUMBUNG (BORN): FY2010 – Strong Above results – reiterate Buy BORN
iSay: Sensitivity Analysis for 100k tonnes lower Sales volume will decrease EPS by 2.5% from base 2011F Volume 3.5m tonnes, however for US$10/t higher ASP will increase 2011F EPS by 8.5% from base ASP USD230/t 2011F. CS is forecasting average Hard Coking Coal benchmark price of USD235/t 2011F (vs spot price USD300/t), USD193/t 2012F, USD170/t 2013F-2014F and USD155/t Long-Term. At Rp1,650/share, BORN IJ is trading on 14.0x 2011F PER and implying 33% upside to end-2011F Target Price Rp2,200 (based on 18x 2011F PER), we reiterate BUY BORN!

· Fonny Surya (Daily attached): BORN reported 2010 full-year earnings of Rp349 bn, about 41% above our forecasts and 22% above consensus’ forecasts. Revenue booked at Rp2,752 was in line with our forecasts and implies ASP of US$178/t (Rp9,360 FX rate). BORN’s gross profit margin improved from 46% in 2009 to 55% in 2010, driven by improving ASP and cost structure. BORN’s cost ex royalties improved slightly from US$83.5/t in 2009 to US$81/t in 2010, primarily with the company realising economies of scale in higher volume. We remain positive on BORN’s outlook. We retain our target price of Rp2,200 based on 18x 2011E P/E.

2) ADARO ENERGY (ADRO): FY2010- Slightly better results, but trim EPS estimates
iSay: CS is bullish with Thermal coal, assuming average benchmark price of US$120/t in 2011F and US$130/t in 2012F, compared to NEWC weekly spot FOB US$122/tonne as of April 1st. At Rp2,300/share, ADRO is trading on 16.2x 2011F PER and implying 13% upside to Target Price Rp2,600/share. We recommend Accumulate on Weakness given medium term growth outlook and Good Management.
· Fonny Surya (Daily attached): ADRO reported FY10 earnings at Rp2.2 trillion, approximately 18% below consensus and 4% above our forecasts, a 6% decrease QoQ and a 40% decrease YoY. Revenue was in line with consensus, approximately 2.5% above our forecasts, an 8.6% QoQ increase and a 4.5% YoY decrease. We expect costs to remain high in 2011 given rising fuel prices. We trim our target price to Rp2,600/share, based on 18x 2011E (12.7x 2012E), and our 2011/2012 EPS estimates by 1-4%. We believe ADRO is still attractive in the medium term given its plan to double production by 2014-15, supported by growing demand in low-rank coal. We maintain our NEUTRAL rating on the stock, but we believe further pressure pushing the share price below Rp2,100/share might be considered a buying opportunity.

3) BUKIT ASAM (PTBA): FY2010 In-line, Lower revenue but good Cost management!
iSay: At Rp22,250- PTBA is trading on 14.3x 2011F PER on the back of 78% EPS Growth and 27% upside to Target Price Rp28,200 (based on 18x 2011F PER), we reit BUY PTBA!
· Fonny Surya (previous Daily attached): PTBA reported FY10 earnings of Rp2,009 tn, in line with our and consensus estimates. Revenue was about 7% below our and consensus estimates due to lower export ASP compared to our forecast. Despite rising fuel costs, PTBA has been able to manage its cost relatively well. PTBA recently settled its domestic pricing with Indo Power (Suralaya) at Rp815,000/t for 2011 (~US$90.6 CIF), about +19% YoY and 5% above our expectation, however the overall domestic ASP rose 26% YoY, in line with our expectation. We maintain our OUTPERFORM rating and target price of Rp28,200, based on 18x 2011E P/E (14.5x 2012E P/E).

4) INDO TAMBANGRAYA (ITMG): FY2010 – Below expectation + Derivative loss
iSay: We don’t expect any ITMG share Placement from Banpu. At Rp48,850- ITMG is trading on 14.2x 2011F PER on the back of 116% EPS Growth, and 10% upside to Target Price Rp54,000, we recommend Accumulate ITMG!
· Paworamon (Poom) Suvarnatemee, CFA (previous Dailies attached): The ITMG net profit is US$204 mn, 20% below our forecast before revision and 28% below consensus. The difference was due to US$38 mn of mark-to-market derivatives loss on coal hedging booked in 4Q10 and a big jump in cost of good sold. Overall, its net profit pre-derivative impacts was 9% below with sharp rise in cost of goods sold as ITMG moved to work in different pits due to the heavy rain in 2H11. Management guided down volume target from 26 mn t to 25 mn t but raised its ASP guidance. We expect ITMG’s earnings momentum to be strong given the low base in 4Q10, when there was a big cost adjustment due to rain. Our FY11E earnings are 15% below consensus. We do not see the risk of Banpu selling down its stake in ITMG. We maintain OUTPERFORM.