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Dec 16, 2016 10:13:05

Indonesian Coal Miners in Focus: Tambang Batubara Bukit Asam

The soaring benchmark thermal coal price of the Indonesian government (called harga batubara acuan, abbreviated HBA), which is set (on a monthly basis) by the Energy and Mineral Resources Ministry, should boost earnings of listed Indonesian coal miner Tambang Batubara Bukit Asam in 2017. The HBA price nearly doubled to USD $102 per metric ton in December from the year-start. Besides the rising coal price, the company should also see improving corporate earnings due to its expected rising sales volume.

The price at which Tambang Batubara Bukit Asam ($PTBA) sells its coal on the domestic market is determined by the HBA. More specifically, the domestic sales price in 2017 is determined by the average HBA in the last three months of 2016. This would be USD $85.2 per metric tons. However, CLSA Securities says the coal miner offers coal at a 20 percent discount, which would mean that Bukit Asam sells its coal (domestically) for a price of USD $62 per metric ton in 2017. This would imply a nearly 40 percent (y/y) growth in average sales price next year and a great boost for the coal miner's corporate earnings.

Bukit Asam, a coal miner that is for 65 percent owned by the Indonesian government, sells about 50-60 percent of its total coal sales on the domestic market of Indonesia and therefore the HBA price growth is a very positive matter for the coal miner. CLSA Securities, in fact, states that Bukit Asam will benefit the most - among Indonesian coal miners - from HBA growth as other local coal miners focus on exports (on average, other Indonesian coal miners only sell 25 percent of their coal output on the domestic market).

Meanwhile, Bukit Asam is also expected to raise coal output in 2017 from an estimated 19.6 million tons of coal in 2016 to 21.7 million tons in 2017. Also, the sales volume is expected to grow to 23.5 million tons in 2017 from an estimated 21.4 million tons in 2016. Rising production and sales will contribute to the company's expected improving corporate earnings in 2017.

Therefore, CLSA Securities advises investors to buy shares of Bukit Asam. Recently, the securities firm raised its target price for the miner's shares from IDR 15,500 to IDR 17,000 a piece. On Thursday (15/12) shares of Bukit Asam climbed 0.79 percent to IDR 12,700 a piece. So far this year, the company's shares have soared a whopping 180.66 percent.

Earlier, Arviyan Arifin, President Director of Bukit Asam, informed that the miner allocated USD $500 million for capital expenditure (capex) in 2017. These funds will partly be used for the expansion of its two coal-fired power plants. Arifin said development of the miner's power plants in 2016 has not met expectations, therefore more funds and time are needed to optimize production and efficiency at its power plants.

Up to the third quarter of 2016, Bukit Asam posted IDR 10.04 trillion in revenue, down 4.3 percent from revenue in the same period one year earlier. This decline is attributed to the lower coal price. For example, the miner exported coal at an average price of USD $51.75 per metric ton in January-September 2016, down from an average of USD $60.81 per metric ton in the same period one year earlier.

Besides coal production and the establishment of coal-fired power plants in Indonesia, Bukit Asam is also eager to establish two power plants in Myanmar and Vietnam.

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