Glowing with Electricity
Better 3Q18 Financial Result Driven by Good Weather
ADRO posted revenue growth of 9.35% YoY and 18.77% QoQ to US$2.67 billion in 9M18 driven by a 8.35% YoY increase in blended ASP. The dry weather in August and September supported ADRO to increase coal production better than 2Q18. ADRO sales volume in 3Q18 rised 9.17% YoY and 20.20% QoQ to 15.47 Mt due to improving weather condition in 3Q18. We assess ADRO's revenue as still in line with our projection, reflecting 74.26% of MNCS estimate. We project ADRO revenue to grow 10.22% YoY/5.20% YoY to US$3.59 billion/US$3.78 billion in FY18E/FY19F .
High Potential from Power Generation
ADRO is currently running two power generation projects, namely, PT Tanjung Power Indonesia (TPI) and PT Bhimasena Power Indonesia (BPI). TPI has a capacity of 2x100 that is tergeted to start operating in 2019. BPI is a 2x1,000 MW coal-fired power plant with operasional target in 2020. At present TPI and BPI have signed a power purchase agreement with PLN for 25 years. We believe that this will certainly exert a positive impact on ADRO, since 100% of the coal needs of TPI and BPI (totaling 8 million tons) will be supplied by Adaro Mining, demonstrating the potential to pump ADRO coal sales. We project ADRO FY18E/FY19F sales volume to reach 52 Mt/55 Mt.
High Demand from ASEAN
Southeast Asia coal imports showed positive growth in 3Q18 where 90% came from Malaysia, the Philippines, Thailand and Vietnam. Most of the coal imports are supplied by Indonesia, which reflected in the growth of Indonesia's coal exports up to 8M18 rose 24.28% YoY. This certainly has a positive impact on ADRO, which is reflected in the portion of ADRO's coal exports to ASEAN, increasing to 38% in 9M18.
BUY Recommendation for ADRO with TP: IDR2,300
We recommend BUY for ADRO with lower TP: IDR2,300, which implies PE/PBV of 10.82x/1.13x on FY18E and 9.60x/1.03x in FY19F. We believe that the acquisition of Kestrel and the power plant project will boost ADRO's performance in the future; against this, fluctuations in LIBOR interest rates and weather factors could act as principal impediments to ADRO's performance growth.
