Bukit Asam Good shelter in the storm

PTBA exposure in the domestic market provides a stable cushion during difficult export market condition, therefore able to generate more stable profitability compared to its more export oriented peers. Recently announced 1H12 performance reveals that ASP remains stable despite weaker global price benchmark. We pick PTBA as one of our top picks in the sector underpinned by its more defensive nature with inherent potential of growth from its ongoing expansion projects. We retain our BUY call on PTBA.

Modest 2Q12 results amid unfavorable condition
PTBA’s 2Q profit declined by 22% q-o-q to IDR675bn driven by lower sales volume of 9% q-o-q while ASP remains stable. On yearly basis, net profit was slightly lower by 4% while revenue still managed to improved by 13% to IDR5.790bn. Lower profitability was driven by increase in production cost while yearly ASP was flat despite increase in sales volume of 13% to 7.4m tonnes.

Historical ASP reflects less volatility compare to global coal price
Our simple exercise in comparing PTBA’s historical ASP with global coal prices indicates that the former has more stable trend then the later. This characteristic bode well for PTBA during the time of uncertainty and volatile global coal market such as now.

Capacity expansion on existing infrastructure remains on track
PTBA continues to ramp up its expansion program on current existing infrastructure that consists of production capacity enlargement in the Tanjung Enim mine and improvement in port capacity at Tarahan and Kertapati which expected to be fully completed by end of 2013. At the completion, it will synergize along with the ongoing project of improvement in current railway capacity that will have a transport capacity of 22.7m tonnes by 2014.

BUY, our top pick in the sector
Given the uncertainty that looms the coal industry at the moment, we pick PTBA as our preference given its defensive nature, sizeable domestic exposure and inherent expansion capability.