Name : BIMLY AKBAR SHAFARA

NIM : 29118226

Course : Capital Market Analysis

PUBLIC EXPOSE SUMMARY

PT. ADARO ENERGY Tbk. (ADRO)

Company Profile

PT Adaro Energy Tbk. Is a company engaged in coal mining which is integrated through its
subsidiaries. Besides that ADRO also has other businesses that are still related to its main
business such as barging, ship loading, dredging, port services, marketing and electricity.
Adaro's main operational location is in the South Kalimantan province. Adaro's main product
is Environcoal, which is a medium-calorie sub-bituminous coal. More coal sales were for
exports, namely 79.9% while for domestic coal sales only amounted to 20.1% of the company's
total coal sales (based on 2013 annual report). For exports, ADRO's biggest market share is
China and India.

Review of Thermal Coal Market

The coal industry faced stronger market headwinds in 2Q19, due to, among others, slower
economic growth, mild weather, low gas prices, high inventories in major importing countries
and higher renewable power generation. These factors affected buying activity and coal
demand in the period, meanwhile rail maintenance in Australia and weather disruption in
Indonesia did not provide the expected support on the supply side. Coal demand from Europe
and Northeast Asian countries declined significantly in the quarter, resulting in the higher
supply of high CV coal. As a result, the Global Coal Newcastle (GCN) benchmark price fell
below US$70 at the end of the quarter, its lowest levels since 2016. Average GCN price in
2Q19 was approximately US$80, 16% lower than 1Q19.

Despite strong performance of domestic coal producers in China, its coal imports in 1H19
increased y-o-y. China’s import of Indonesian 4,200 kcal/kg (GAR) coal and below went up
by approximately 7.5 Mt y-o-y in 1H19 given the competitive prices. On the other hand,
bituminous and sub-bituminous coal imports declined by 6.4 Mt y-o-y. Inventories at China’s
key power plants remained high, which put further pressure on imported coal prices towards
the end of 2Q19. Uncertainty over China’s import policy continues to create anxiety in the
seaborne market until the end of the year. India imported approximately 89 million tonnes (Mt)
of coal in 1H19, more than 17% increase y-o-y as increasing domestic coal production still
lagged the growth in domestic coal demand.

India has continued to have strong buying interest as demand from power and industrial sectors
in the country has continued to grow. On top of that, as monsoon season approaches, power
plants build inventory. Indonesian coal accounted for approximately 60% of India’s thermal
coal imports in 1H19.

Indonesia’s production in 1H19 increased by approximately 9% y-o-y, and domestic coal

consumption went up by 17% y-o-y. Several coal producers in Kalimantan experienced
torrential rains in June which affected operations and created short term delays in shipments.
Healthy demand from China and India provided support for prices of Indonesia’s low heat
value coal types. In addition, increasing power output in Vietnam has led to increasing coal
imports of Indonesian sub-bituminous coal. Indonesia’s domestic demand is also expected to
be strong for the rest of the year, as new power plants are expected to commission in 4Q19.

Coal Trend

- When role of china in seaborne

market gradually decreasing, south east Asia
and South Asia region will be the main
driving factor for demand.
- The demand for coal seaborne estimated
will be at ~1 Bt for long term.
- Electrification in developing countries
keep being demand driver.
- Around 300 GW coal power plant still in
development in Asia.Demand outside
Figure 1 Global coal demand based on region.
Note: JKT (Japan, Korea, Taiwan); SEA (Southeast Asia); RoW(rest of the power sector are for cement making and
world).
Source: Wood Mackenzie, Global thermal coal long-term outlook H1
2019: the power switch –is it lights out for coal?
liquid fuel production.
Figure 2. Supply and demand
Source: Wood Mackenzie, Global metallurgical coal long-term outlook H1 2019

- Demand for metallurgical coal increasing with the growth of production and consumption
of steel.
- Estimated that the coal demand for global metallurgical coal seaborne will raise from 313
Mt in 2019 become 422 Mt in 2040.
- Australia dominate the supply of metallurgical coal supply with contribution more than
60% from the demand, while demand is dominated by China and India followed by Japan
and South Korea.

ADARO PERFORMANCE 1H19

Units 1H19 1H18 1H19 vs. 1H18

Coal Production Mt 28,47 24,06 18%

Sales Volume Mt 28,77 23,8 21%

Stripping Mbcm 127,49 123,01 4%

Strip Ratio x 4,48 5,11 -12%

- Adaro made a raise in coal production 18% y-o-y in 1H19 become 28.47 Mt.
- Good weather condition in first half 2019 also support the activities of relocation of
stripping in Adaro mining site.
- Strip ration in 1H19 decreasing 12% because of the increase of production exceed the rate
of stripping and go along with the plan to reduce the strip ratio in 2019.

FINANCIAL PERFORMANCE ANALYSIS FOR THE FIRST SIX-MONTHS OF 2019

(1H19)

Financial Performance

Financial Ratios

Operating Segment
Revenue, Average Selling Price and Production
Adaro revenue increased 10% year-over-year to US$1,775 million, as a result of higher
production and sales volume. Production in 1H19 increased 18% y-o-y to 28.47 Mt, and
coal sales increased 21% y-o-y to 28.77 Mt. Solid demand for Adaro coal during the period
and strong operations performance supported the improvement. The blended Average
Selling Price (ASP) for Adaro coal decreased 9% y-o-y and decreased 3% q-o-q as the
industry has been faced with numerous challenges which affected global coal prices.

Cost of Revenue
Cost of revenue increased 8% y-o-y to US$1,211 million, largely driven by higher volume,
higher fuel costs, as well as higher royalty payment to the Government of Indonesia. Coal
cash costs per tonne (excluding royalty) decreased 7% y-o-y due to sustained efforts on
cost efficiency. Adaro blended average strip ratio was 4.48x in 1H19, slightly lower than
Adaro guidance of 4.56x. Adaro expect to catch up with our strip ratio guidance in the
upcoming quarters. Total fuel cost increased by 10% y-o-y, as fuel consumption increased,
driven by higher production and overburden removal volume compared to the same period
last year, while fuel price per liter was flat y-o-y.

Royalties to Government and Corporate Income Taxes

Royalties to the Government of Indonesia increased 12% y-o-y to US$189 million as we
booked higher revenue. AE continues to deliver positive contribution to the nation’s
developments and complies with prevailing regulations on taxes. In 1H19, we paid a total
of US$356 million in royalties and corporate income tax.

Operating Expenses
In 1H19, operating expenses increased 28% to US$115 million compared to the same
period last year, due to higher sales commission and employee costs in-line with the
growth of our business y-o-y Operational EBITDA. We continued to generate solid
operational EBITDA backed by strong operational performance. Operational EBITDA in
1H19 reached US$691 million, 17% higher y-o-y, demonstrating the quality of our
earnings. We booked a 39% operational EBITDA margin which remains as one of the
highest among Indonesian coal producers. We are on track to achieve our operational
EBITDA guidance of US$1-US$1.2 billion.
Core Earnings
We booked 38% higher core earnings y-o-y to US$371 million, reflecting the improved
performance of our core business and operational excellence.

Total Assets
Total assets of US$7,157 million were 5% higher compared to the same period last year.
Current assets decreased by 9% to US$1,544 million, primarily due to 15% lower cash
balance as we paid for our equity portion in Kestrel in the second semester of 2018 and we
continued to pay down our debts. At end of 1H19, cash and cash equivalents stood at
US$895 million and accounted for 13% of total assets. Non-current assets increased by
10% to US$5,613 million as a result of higher investment in associates and higher fixed
assets.

Total Liabilities
Total liabilities increased 4% y-o-y to US$2,714 million. Current liabilities increased by
34% to US$1,044 million, while non-current liabilities decreased 9% y-o-y to US$1,670
million as some portions of our bank loans are maturing.

Conclusion

The company (Adaro) understand that the coal industry is a cyclical industry. The business
model management proven to handle this. A lot of concern regarding coal industry in short
term, yet in long term fundamental, this business is still in a good potential (Indonesia,
South East Asia and South Asia will be main driving factor).

Adaro offer complete coal product portfolio from thermal coal until premium coal that
give company flexibility in coal market. Company keep making a good book keeping
record and financial performance with strong cash flow to keep running the business and
do strategic investment. Adaro commit to give back to share-holders with routine dividend
payment.

Envirocoal product have a strong advantage from the low pollutant contain and become
wanted product by countries that limited electrical power plant emission. With
diversification on eight business subsidiaries, business model Adaro is ready to catch the
market opportunity.