ABM Investama Powering Ahead
Leveraging on the Trakindo Group. ABMM’s major shareholder the Trakindo Group (Hamami Family) – which is also the sole distributor of Caterpillar heavy equipments since 1971 – has an established reputation and strong brand recognition in Indonesia. ABMM’s strong relationship with Trakindo would allow the former to gain access to financial resources, timely market intelligence, superior after-sales support and potential cross-selling services.
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Emerging new core business. Currently, the group’s earnings are predominantly contributed by its subsidiaries, Cipta Kridatama (~53% earnings contribution – contract mining) and Sumberdaya Sewatama (~28% – power solutions). However, in the long run, we expect ABMM’s subsidiary, Reswara (currently contributing only 5% to group earnings), to be the backbone of ABMM’s consolidated business. We believe that Reswara’s coal mining business will contribute ~40% to the group’s earnings in the long term. We expect ABMM’s EBITDA to grow at a CAGR of 52% from 2011-2014, while its net profit is anticipated to grow at a CAGR of 72% over the same period, driven by the robust growth of its 3 key businesses.
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Robust coal production growth. ABMM has two IUP coal mines – MDB (70% owned; Aceh) and TIA (100%-owned; South Kalimantan). Its reserves and resources are 221m tonnes and 561m tonnes respectively. We expect its coal production to reach 5.5m tonnes, 12.5m tonnes and 15.0m tonnes for 2012, 2013 and 2014 respectively, largely driven by the production from its MDB mine. Despite ABMM’s relatively low rated coal quality, we expect ABMM to enjoy lower cash cost going forward as it will be able to derive economies-of-scale benefits from ramping up its production and completing its conveyor belt faciltity for its MDB site in 1Q13. Mines site proximity to port (25km for TIA & 12km for MDB) and low strip ratio of 5x and 2.5x, respectively, should give advantage to run at lower mining cost.
Adaro’s Improvement Coal Production in 2Q18
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Mining contracting and electricity rental business to spur ahead. ABMM’s subsidiary (100%-owned), Cipta Kridatama, is the top 5 contract mining service in Indonesia in terms of overburden removal. ABMM recently inked a 5-year USD300m contract with Riau Baraharum, which will give the former more stable and steady revenue streams for the next 5 years. We expect overburden removal volume to grow at a CAGR of 20% from 2011-2014. Sumberdaya Sewatama, which is a 100%-owned subsidiary by ABMM, claims to have a 42% market share in the temporary power industry, with Perusahaan Listrik Negara (PLN) being its main customer. We believe the temporary power business will complement the country’s relatively immature power grid, with 80m people (~1/3 of the total population, ~66% electrification ratio) having no access to electricity. Valuation. ABMM is currently trading at 10.8x and 6.2x 2012-13 PER, which is a relatively cheap valuation compared to its peers.
