Bukit Asam, Not giving up, CLSA

We attended an analyst briefing hosted by PTBA’s corporate secretary and investor relations team. Key takeaways are 1Q12 production is likely at the lower end of our estimates and probably disappoint consensus at c. 3mt. On the plus side, domestic prices are locked in at an average US$87/t (+3% yoy), in line with our estimate. The company is still adamant on winning back concessions issued by the Lahat regency in South Sumatra, including Adaro’s MIP concession.


1Q12 production likely at the low end
PTBA released a tentative 1Q12 production number of 3mt for their main mine (Tanjung Enim) with production numbers to be officially released at the end of April. 3mt is at the lower end of our estimates (21% of 12CL) and reflects several minor accidents on the railway line connecting the mine with the port. A 3mt 1Q12 production result implies 7% y-o-y production growth, on 1Q11. Our 14mt assumption for production from Tanjung Enim requires a 4mt run rate in each of 3Q12 and 4Q12 which is achievable as new rolling stock is delivered progressively.

Domestic prices settled in line with our estimate
PTBA has fixed all domestic coal sales for FY12 at a weighted average price Rp780k/t (US$86.6/t), implying an increase of 3% YoY and exactly in line with 12CL estimates. PTBA sells 65% of its coal domestically on fixed annual contracts with the balance exported and sold on a blend of spot and index linked contracts reflecting seaborne benchmark pricing.

Still adamant on MIP case
PTBA has lodged an official case with the anti-corruption agency (KPK) against the former head of the Lahat Regency for issuing concessions overlapping its own in 2004. One of the IUPs is Mustika Indah Permai (MIP) now owned by Adaro Energy (ADRO IJ). We remain unsure who will prevail as it will come down to interpretation of many overlapping government regulations but are convinced that the issue will not go away quickly and a lengthy judicial process will weigh on the performance of ADRO.

Trading at a premium to peers
PTBA is currently trading at 11.8x 12CL P/E a premium compared to local peers but in line with the regional average. This stock continues to present an option over eventual delivery on long promised new railway projects lifting production growth. Our top sector pick remains defensively positioned ITM.

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