Bukit Asam, One Track Mine, CLSA

We attended a site visit to South Sumatra last week visiting PTBA’s mine,
river port and rail infrastructure. PTBA is one of the lowest cost producers
in Indonesia with a highly mechanised operation and low mining strip
ratio. The stock has been an early outperformer in 2012 up 21% ytd. We
raise our target price to Rp23,500/sh following a re-rating of cyclical
equities. We retain our Outperform call but as the stock now only offers
12% upside to our fair value would prefer to buy on any weakness.
Mechanised mining

PTBA is the largest miner in South Sumatra with its Tanjung Enim site
boasting 66,000hA and 1.9bt of thermal coal reserves. The site is the only in
Indonesia using bucket wheel excavators which are directly linked to coal
carrying conveyers. Together with a low mining strip ratio of 4bcm/t - a
product of favourable geology with a low-gradient coal seam – this makes the
operation one of the lowest cost in Indonesia.
All about the railway
Despite the efficiency and longevity of its mine site, issues to realising
production growth have been rail haulage shortcomings by fellow SOE rail
operator Kereta Api. Capacity increases in 2012 will focus on additional rolling
stock with double tracking a key section of the railway now likely to be
complete in 2013, or 6 months behind schedule. The Tanjung Enim site has
three train loading stations linked to stockpile capacity of 1.5mt which we
estimate is already sufficient to cater to our 2014 19.6mt capacity estimate.
An early outperformer
During the last 2 months PTBA has increased 21% and has been the best
performing Indonesian coal stock under our coverage year to date. The
outperformance has been driven by renewed optimism in infrastructure
development following new SOE minister Dahlan Iskan’s appointment and
plans for a share buyback signalling higher capital returns could be on the
cards.
Increasing target price to Rp23,500/sh. Buy on weakness
Our site visit does not lead to any adjustment to earnings, however recent
share price strength means the share buyback approved in 4Q11 is unlikely to
occur. We raise our target price to Rp23,500/sh reflecting increased multiples
of where the stock currently trades 12x forward PE and 8x forward EV/Ebitda
applied to 12CL/13CL blended estimates. The thesis for operational
improvement remains intact and we recommend adding to positions on any
weakness.

Download file : Indonesia PTBA Final 130212