Adaro Leader The Pack
Illustration: Adaro Leader The Pack
Adaro Leader The Pack. Buy initiation; target price Rp2,900. Our Buy recommendation hinges upon ADRO’s, First, strong exposure to the domestic coal market, Second, proven record for production growth, Third, sizeable coal reserves, and Fourth, financing capability for expansion. As well as, our end-2011 DCF target price is Rp2,900, which implies 16.3x 2012F earnings. Furthermore, its share price catalysts may include the commencement of the Maruwai mine and higher coal prices.
Resource Alam Indonesia, Plenty of excitement
Shelf Registration II WOM Finance Tranche II Year 2017
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Domestic market no more an afterthought. Moreover, after several years of tepid growth, domestic coal demand is set to accelerate in the coming years as newly develop 10,000MW coal-fired power plants come on stream. That said, domestic demand for coal is predict to reach 130m tonnes by 2015 and hit 220m tonnes by 2020 from 50m tonnes in 2009. In fact, ADRO allocates 23% of its coal to the domestic market as the characteristics of its coal are suitable for domestic power plants. Thus the company will be a key beneficiary of rising demand.
Resource Alam Indonesia, Excitement Aplenty
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Continuing to ramp-up production volume. In addition to, with a production CAGR of 11% from 2001-2010, ADRO’s annual production capacity can be raised to 80m tonnes end-2015. A major plan is to build an Out of Pit Crusher and Conveyor (OPCC) and mine-mouth power plant. Historical performance has shown that management is capable of executing its expansion plan.
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Coal reserves aplenty, with upgrade potential. As well as, ADRO has total reserves of 889m tonnes, which translate into a mine life of c.19 years, based on current production. In addition to, the company also has coal resources of 3.4b tonnes. In fact, Another potential increase in reserves will come from the JV with BHP Billiton at Maruwai mine, which is currently still at the development stage.
Resource Alam Indonesia, Growth-Driven Business Strategy
Shelf Registration Bond II OCBC NISP Tranche II Year 2017
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Initiate with a BUY. Finally, ADRO currently trades at 16.7x 2011F earnings compared to the weighted average Indo coal companies’ 13.9x. However, we believe the premium valuation is justifiable given the ADRO’s strengths and its position as the largest stock by market cap in the sector, as well as its sizeable liquidity. Last, we arrive at our target price for ADRO of Rp2,900 using a DCF valuation, on assumption of WACC of 10.3%.
