In Search of Coal Players’ Afterparty
Key Takeaways:
▪️ As of Nov-23, Indonesian coal industry's activity grew strong; output grew 10.0% YoY reaching 697.8mn tons, both the domestic as well as export sales grew 8.3%/4.5% YoY to 296.6mn/352.4mn tons, respectively. This was met with solid demand from China and India amid energy security concerns; their imports have surged 98.1% YoY and 10.3% YoY, respectively, as of 10M23.
▪️ We foresee demand for coal to remain solid in FY24F despite the stacking inventories; China and India have a hasty agenda of ramping up their CFPP capacities. MoEMR expects FY24F production to be maintained at c. 700mn tons. We project the Newcastle price to hover around c. USD120/ton for FY24F, entailing a blended ASP of -32.4%/-13.4%/-27.8% YoY for ADRO/PTBA/ITMG.
▪️ The miners in our universe performed as expected in 9M23; seeing a normalizing decline in net profit. Out of the three, ADRO’s decline was the most cushioned, landing a less painful -36% YoY decline (24.5% NPM) compared to ITMG’s and PTBA’s even steeper decline of -54.6%/-62.2% YoY (NPM of 22.2%/13.6%), respectively.
▪️ The overarching theme for coal players going forward is going to be on who can weather a slower bottom line decline. What we think will help cushioning the decline would be exposure to the Chinese and Indian market. From our universe, the coal player that has the most exposure to such market giants would be ITMG (China: 29%; India: 4%), ADRO (China: 20%; India: 11%) and then PTBA (China: 9%; India: 17%).
▪️ A risk for the base case scenario would be enactment of Mitra Instansi Pengelola (MIP/BLU), which the government has indicated to be rolled out in Jan-24. This would flip the tables and potentially favor PTBA instead.
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