Adaro Energy (ADRO) - Production on Track

Adaro Energy (ADRO) – Maintain BUY
Price: Rp2,225 – Target Price: Rp2,800

Production on Track

  • PT Adaro Energy (ADRO) reported 1Q11 net earnings of US$109mn, grew by 11.3% YoY or 89.5% qoq.
  • Net revenue increased by 11.7% YoY or 2.7% qoq to US$757 mn, around 21.9% of our FY11 estimates.
  • Coal production volume and sales volume declined by 6.8% and 4.8%, respectively in 1Q11, however ASP increased by 16.3% YoY.
  • On the cost side, COGS increased by 16.5% YoY due to higher planned strip ratio (from 5.0x to 6.4x), longer overburden hauling distances and higher fuel prices.
  • 1Q11 coal production of 10.6mn ton has reached 22.5% of our FY11 target.
  • Adaro has underperformed market by 15% YTD due to consensus earning downgrades.
  • However, with continuing robust coal price and Adaro’s plan to double production up to 80 mn ton in 2014, we believe Adaro’s outlook remain intact.
  • We retain our BUY recommendation, with price target Rp2,800/share, implies 14.1x PER’12. MAINTAIN BUY