Indonesia Coal : Bullish on coal outlook; price forecast tweaked up - BoAML

Raising medium-term coal price forecast
China has resumed buying seaborne thermal coal, substantially improving the
outlook for 2012. BofAML Commodity team raised its JFY coal price forecast for
2012 by 7.6% to US$140/t, while keeping its 2011 and LT forecast unchanged.

ADRO our top pick: liquid & asset acquisition next catalyst
We raise ADRO’s net profit forecast by 10% for 2012 and 4% for 2013. We now
use YE12 as the basis for our NPV and raise our PO by 11% to Rp2750. ADRO is
our top pick in the sector. We see potential upside to our NPV from potential coal
asset acquisitions. We understand currently it is still finalizing the acquisition
structure and official announcement could take some weeks or months. We
believe it can raise up to US$2.5bn in loans to fund these acquisitions. As of
March 2011, ADRO’s total cash stood at US$629mn and debt at US$1.6bn. It still
has US$420mn of standby facility. Current net debt-to-EBITDA stands at 1.0, vs.
the maximum of 3.5 set by the existing debt covenant. Meanwhile, in our estimate,
debt service coverage is at 3.2, vs. the minimum of 1.2 at debt covenant.

SAR our second pick
We raise SAR’s net profit forecast by 8% for 2012 and 3% for 2013. We raise our
NPV-derived PO by 10%, to $3.3. Reserve upgrade in 3rd quarter and
commissioning production in Sebuku are company-specific catalysts.

ITMG our third pick: export coal proxy
We raise ITMG’s net profit forecast by 10% for 2012 and 3% for 2013. We raise
ITMG’s NPV-derived PO from Rp52300 to Rp54000. ITMG is Indo’s coal export
proxy and it is now our 3rd pick in the sector. It has been an underperformer
lately, as investors are concerned about a potential rights issue to fund
acquisitions and disappointing earnings. But we think those are priced in, with
ITMG now trading at the lowest earning multiple.

PTBA Neutral: expensive with LT projects priced in
We raise PTBA’s net profit forecast by 3% for 2012 and 2013. We raise PTBA’s
NPV-derived PO from Rp22000 to Rp22500. The stock is not cheap.
Contributions from existing railway plans and some value from new railway
projects (still being engineered) are fully priced in. Neutral.
Indika Neutral: not cheap & Petrosea listing priced in
We raise Indika’s net profit forecast by 6% for 2012 and 2% for 2013. We raise
Indika’s SOTP-derived PO from Rp4025 to Rp4200. Valuation is not cheap and
we see downside in 2011 earnings. Petrosea’s listing seems priced in and we see
dilution to earnings by up to 8%. Neutral.

BUMI U/P: not cheap even assuming debt free
We raise BUMI’s net profit forecast by 12% for 2012 and 1% for 2013. We raise
BUMI’s PO, which is set at 13x 2012E PE, from Rp2900 to Rp3000. The stock is
not cheap and there are too many confusing transactions. U/P.

BYAN U/P: expensive and not liquid
We raise BYAN’s net profit forecast by 30% for 2011 and 19% for 2012 on higher
coal volume and coal price. We raise our PO from Rp6350 to Rp7350, which
implies 70% downside. The stock is too expensive and illiquid. U/P.