Harum Energy: Challenging Time Ahead ($HRUM)
- HRUM’s FY15 net loss of USD19.2mn is below expectation. We cut our FY16/17F
net profit/ (loss) by 201%/92% after lowering our coal price assumption and sales
volume. Maintain neutral with TP of Rp910.
- Weak FY15 results. HRUM reported 4Q15 net loss of USD20.2mn, bringing total
FY15 net loss to USD19.2mn (vs. our forecast of (USD4.2mn) and consensus of
USD2.7mn). This is mainly due to lower coal ASP, lower sales volume, and a onetime
impairment charge of USD13.2mn in 4Q15 related to its mining asset
investment in Australia. Excluding the one-time charge (impairment, forex loss,
and net loss of associate), HRUM posted FY15 net profit of USD0.7mn. Revenue
fell to USD249.3mn (-48% YoY) on lower sales volume at 4.6Mt (-43% YoY) and
lower coal ASP at USD52.7/ton (-14% YoY). Gross margin improved by 20bps to
18.4% from 18.2% in FY14 thanks to lower FOB vessel cash cost at USD39.9/ton
(-16% YoY) as a result of lower fuel price. Stripping ratio in FY15 remains
relatively flat at 7.6x.
- Keeping cost under control. As we expect headwind to persist in the coal
sector; cost reduction remains the company’s key focus. As such, we factor in
lower strip ratio of 7.0x/7.5x (vs. 7.6x in FY15), overburden, and fuel price in our
FY16/17 forecast, hence putting the cash cost at USD39.6/ton (-1% YoY) and
USD39.2/ton (-1% YoY) in FY16/17. Meanwhile, we also lower our FY16/FY17
production volume target to 3.5mn tons/4.0mn tons in FY16/FY17 (from 7.0mn
tons), in-line with company guidance.
- Clean balance sheet. As of Dec-15, HRUM maintained a debt-free balance sheet.
It has a cash balance of USD195.7mn, higher than its current market
capitalization of USD177.8mn, thus we believe HRUM is the cheapest coal stock
under our coverage.
- Earnings risk on low coal price. Despite its cheap valuation, we think HRUM is
the most vulnerable to low coal price due to 1)high exposure to spot market; and
2) low reserves. We cut our FY16/17F net profit/ (loss) by 201%/92% after
lowering our coal price assumption to USD55/ton (from USD65-70/ton). We also
cut our FY16/17 sales volume target by 43% and 44% to 4.0mn tons and 4.5mn
tons respectively. Overall, we maintain our neutral call with target price of Rp910
based on 0.7x target P/BV.