Live Chat Software
Berita Dan Riset Terbaru
Company Research
Indo Tambangraya (ITMG IJ IDR25,625 BUY. TP: IDR33,200) Unfavorable weather hit coal production
May 14, 2018 17:33

Indo Tambangraya(ITMG IJ)

Unfavorable weather hit coal production

 

Indo Tambangraya Megah (ITMG) reported net profits of USD58mn in 1Q18 (-27.8% qoq, but +1.6% yoy). The decline in quarterly net profits was mainly due to lower coal production on harsh weather conditions. The 1Q18 net profits were below our expectation and consensus estimates. Nonetheless, we upgrade our recommendation to BUY as the recent share price correction provides upside of 29.6% to our TP of IDR33,200 (based on mine-life DCF valuation with WACC of 11.9%). Our target price implies 9.6x 2018F PE.

 

Lower quarterly results. The company reported 27.8% qoq lower net profits in 1Q18. While coal prices remained strong, we believe the decline in net profits was mainly due to weak coal production. Based on data from Banpu, sales volume from the Indonesia operations only reached 4.4mn tonnes in 1Q18 (4Q17: 7.3mn tonnes). This reflects the unfavorable weather conditions at ITMG’s mining area in East Kalimantan. Despite this, the company still managed to maintain its operating margin at 23.2% in 1Q18.

 

Higher coal prices shored up the 1Q18 net profits on a yearly comparison. Despite lower coal production growth on the back of unfavorable weather conditions in addition to higher costs, ITMG managed to post slightly higher net profits on a yearly comparison (+1.6% yoy), mainly thanks to: a) a lower corporate tax rate at 29.6% in 1Q18 (1Q17: 35.3%) and b) higher ASP. We believe that the higher costs were mainly attributable to a higher stripping ratio in 1Q18.

 

Slight recovery in coal production expected in 2018.  After unfavorable weather lowered coal production by 13.8% yoy in 2017, the management has indicated a slight recovery in coal production by 1.8% yoy in 2018 while maintaining the average stripping ratio (SR) of around 11x. We expect better weather conditions to help the company raise coal production in the coming quarters.

 

Upgrade to BUY. With sturdy coal prices in 2Q18 and expectations of better weather conditions, we expect ITMG to book better earnings in the coming quarters. We upgrade our recommendation to BUY as the recent share price correction provides attractive upside of 29.6% to our target price of IDR33,200 (based on mine-life DCF valuation with WACC of 11.9%). Our TP implies 9.6x 2018F PE.

 

 

… read more 20180514 ITMG