Excellent Performance During Price Momentum
9M21 Sales Volume Overview
• PTBA's coal sales volume increased 11% YoY reaching 20.9 mn tons in 9M21 (vs 18.6 mn tons in 9M20) due to a significant increase in coal export, primarily to China, reaching 49% QoQ in 9M21. Optimization of coal price momentum eventually affects the company’s top and bottom line performance.
• ADRO recorded its 9M21 sales volume of 38.86 mn tons in 9M21 down by 4.66% YoY (vs 40.76 mn tons in 9M20) due to challenging weather conditions which affected coal production process.
• ITMG's coal sales volume decreased 3.89% YoY to 14.8 mn tons in 9M21 (vs 15.4 mn tons in 9M20). Export growth is still constrained by weather, efforts to prevent Covid-19, and strong domestic demand. Sales from China contributed the most by taking the largest quantity and highest price due to the massive coal deficit.
Global Coal Demand Remain Strong.
• Coal imports in China reached the highest 292.32mn tons in 11M21 or grew by 10.6% YoY. This figure shows China's high consumption due to cold weather.
• There is a growing chance the La Nina weather pattern will return this year and potentially exacerbating an already tight global coal supply situation over the winter. We anticipate a relatively tight supply on Australia and Indonesia's output in 1Q22. Hence, we estimate this condition will have an impact on coal price rally in 1Q22. Meanwhile, we see that coal price will relatively stablein 2Q22 onward, as China pledges efforts to ensure coal supply.
• Bloomberg estimates that coal prices in FY22E will be at the level of USD121.83/mt or down around - 28% YoY while the World Bank estimates coal prices will be at the level of USD120/mt until FY22E. This is in line with our forecast at USD100/mt – USD120/mt driven by the recovery in economic activity, the increasing demand for gas in the US as a substitute, and the rainfall will begin to ease up to 2Q22E.
Clean Energy Movement and Coal Export Ban
• On 10M21, Indonesia's total coal exports reached 366.11 mn tons (+11.40% YoY), a 90.14% realization, driven by higher global demand. We estimate coal demand will still be quite high in FY22E although not as big as in FY21E amid the need to anticipate the winter season that has been met, as well as the need for coal consumption for domestic power plants.
• Indonesia began to switch to clean renewable energy in the decision of the COP26 climate talks in Glasgow, Scotland, but this step requires a long process, considering that the majority of electricity supply in Indonesia comes from PLTU. To support this movement, several companies plan to transform into clearer energy, such as PTBA which plans to work on a solar power plant (PLTS) to become an energy-based company in FY26F with revenue contributions from the energy and coal business sectors.
• The Ministry of Energy and Mineral Resources (ESDM) has banned coal exports from January 1, 2022 to January 31, 2022. Because PT PLN (Persero) has a coal deficit to meet domestic needs (Domestic Market Obligation/DMO to avoid blackouts to 10 million PLN customers). We consider this to be quite an impact on the top line performance of coal issuers in 1Q22E, especially those with the largest portion of revenue from coal exports such as INDY, ITMG, HRUM, and ADRO.
NEUTRAL Outlook with Top Picks: PTBA IJ
NEUTRAL outlook for the coal sector and our top picks are: 1) PTBA (BUY TP: IDR3,300) with a +19% potential upside. We chose PTBA supported by a greater demand from PLN; while 2) ADRO (HOLD TP: IDR2,460) due to the impact of export ban and limited upside; and 3) ITMG (HOLD TP: IDR20,600) will have quite an impact on the export ban coupled with the potential for lower coal prices.
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