MNCS UPDATE REPORT

MNC Sekuritas Research Division | March 13, 2023

PT Adaro Energy Indonesia Tbk (ADRO IJ)

Coal Mining
Bountiful Record-Breaking Achievements; Any Afterparty in FY23?
ADRO’s sales transcended the historic ceiling
The stretched-out Russian-Ukraine dispute sent windfalls over to coal companies in Indonesia from
HOLD cranked up coal prices amid energy supplies disruption. Coal ASP shot up +74% YoY and proved to
benefit ADRO as 75% of the market share was export-directed. This sent ADRO’s revenue to blossom
Target Price : IDR3,100
by +103% to all-time high USD8.1bn in FY22 (vs USD3.9bn in FY21), or shooting slightly beyond our
forecast of USD7.6bn (106%). Net income came in flourishing at a record-breaking USD2.49bn,
credits to the coal ASP that reached historical highs and an unexpectedly lower stripping ratio.
Stock Data
Superseding operational performance
Current Price (IDR) : 2,860
The company’s stripping ratio was reported to dive lower in FY22 to 3.7x (vs 4.1x in FY21), slipping
through our forecast of 4.07x, hence the reported stellar and record-high operational EBITDA of
52wk Range L-H (IDR) : 2,650 –
4,250 USD5bn in FY22 (jumped +139% YoY from USD2.1bn in FY-21). Total production volume was
managed at 62.88mn t despite volatile weather conditions, rendering the sales volume at 61.34mn t
Share Outstanding : 31.99 Bn or rose 19% YoY (vs 51.58mn t in FY21), in alignment with the guidance and our projections.

Mkt Capitalization : 93.08 Tn Vault is bursting with cash; attractive dividend yields to reap
(IDR) ADRO’s cash balance managed to soar +125% YoY to USD4.1bn in FY22 (vs USD1.8bn in FY21). They
trimmed off 2% of the interest-bearing debts to USD1.6bn. The company is managing a stern debt-
to-equity position of 26.27% for 4Q22. Long term debt position was paved down to USD798mn. All
Major Shareholders in all, the company’s vault is currently holding a net cash of USD2.6bn. Given the ample cash
reserves, ADRO has allocated USD650mn for dividends, of which USD500mn has been redeemed in
PT Adaro Strategic : 43.91% Jan-23. Imminent final dividends payout of USD150mn poses as a short-term driver for investor’s
Investments appetite. Assuming the dividend payout ratio stands at 40.3%, the potential for dividend yield is paved
to at least reach an attractive 10.5% for FY23 (vs 9.31% in FY22). Additionally, we also view the
Garibaldi Thohir : 6.18%
management’s plan in carrying out share buybacks as a short-term catalyst.

Public : 49.54% Any afterparty for coal rakers?

Some upsides might still await for one of Indonesia’s prominent coal corporations in what seems to
be a bleak outlook for coal ahead. With China’s reopening of its borders, economic activity is poised
to kickstart, as is indicated by the rebound of Caixin Composite PMI to 55.4 in Feb-23 (vs 51.1 in Jan-
23), affirming an expansive and sustained business sentiment, now that Covid-19 seems to be out of
the equation. To fulfill its energy needs, the Chinese Government ploys to build an additional 50MW
coal-fired generation capacity and this could be a glad tiding for coal prices as a third of global coal
consumption for power generation is derived from China alone. Its neighboring country, India, is
facing severe heatwaves this summer, setting up a surge in electrical usage for air-conditioning, of
which 49.6% of the electricity mix is still dependent upon coal-powered plants. Receding investment
appetites into new coal projects as most banks are held back by their zero-emission pledges could
help hold the ceiling up for coal, considering that the renewables power generation sector hasn’t fully
matured to takeover the coal-powered plants at least for FY23F. We also acknowledge the newly
enacted HBA coal price policy from MoEMR of Indonesia that’s posed to yield coal companies higher
ASPs. Coupled with the IUPK scheme, ADRO’s margins are set to substantially ramp up.

Recommendation BUY for ADRO with TP: IDR3,100

We update our recommendation for ADRO with a HOLD call and a target price of IDR3,100 (8.4%
upside), implying 1.11x EV/EBITDA in FY23F. ADRO is currently traded below its -2STD of its 5 years
historical EV/EBITDA mean. We expect ADRO to sideline in FY23F due to normalizing ASP, however
we view attractive dividends and share buybacks to instill short-termed strategic investment
appetites. Downside risks to our call include: 1) moderating economic activity in China, 2) mild
summer in India, 3) price competitiveness from Australia’s coal and 4) weather conditions.

Key Financial Highlights

USD FY20 FY21 FY22 FY23F FY24F
Revenues (mn) 2,534.84 3,992.72 8,102.40 7,525.02 6,461.58
EBITDA (mn) 713.98 1,990.16 4,786.30 3,186.81 2,541.62
Net Income (mn) 146.93 933.49 2,493.08 1,456.60 1,072.88
ROA (%) 2.30 12.30 23.12 14.15 10.39
Research Analyst ROE (%) 3.72 20.94 38.19 21.45 15.43
Alif Ihsanario PE (x) 43.69 6.88 2.49 4.26 5.78
alif.ihsanario@mncgroup.com EV/EBITDA (x) 2.87 1.06 0.73 1.11 1.34

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Exhibit 1. ADRO’s lavish earnings in FY22 disrupted the margins positively

ADRO’s earnings projected

Revenue (LHS) Net Income (LHS) GPM (RHS) OPM (RHS) NPM (RHS)
to marginally subside from
the year of commodities 60%
8.00 57%
but still vastly beyond pre-
pandemic levels. 7.00 53% 50%
44% 46%
6.00 42%
38% 40%
USD Bn 5.00 38%
33% 35%
31% 30%
4.00 28%
25% 23% 23%
3.00 20%
18% 19%
17%
2.00 11%
12% 12% 10%
1.00 6%
- 0%
FY18 FY19 FY20 FY21 FY22 FY23E FY24F
Source: Company, MNCS Research

Exhibit 2. China Caixin Composite PMI shows momentous rebound

Lockdown lift spurred China affirmed as non-

The sharp rebound in back factory activity Lingering Covid-19 control impacts imminent virus variant
51.7 pressures economic activity area as per Federal 51.6
February-23 is believed to Foreign Office.
traverse into a sustained 50.4 50.4
economic recovery now Spikes in Covid-19 cases
followed by widespread 49.5
that Covid-19 is out of the 49.1 lockdowns 49.2 49.4 49.2
49
equation, therefore
pushing for more electricity 48.1 48.1 48.1
demand.

46

Source: S&P, MNCS Research

Exhibit 3. China’s and India‘s estimated power generation mix in 2023

Coal still comprises the vast India China

majority of China’s and
India’s power source at
least until FY25F. Coal Coal

Gas Natural gas

Nuclear
Hydro
49.6% Hydro 48.0%
Wind, Solar and
other RE Wind
Biomass
Solar
Nuclear Biomass

Source: CET, India MoP, MNCS Research

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Exhibit 4. China’s coal inventory Exhibit 5. China’s imports on a steady incline despite Covid-19 pressures

14
YTD Imports (RHS) Imports (LHS)

50 350
13 45
300
40
35 250
mn tons

12 30
200

mn tons

mn tons
25
150
20
11
15 100
10
50
5
10
0 0

1/2016
5/2016
9/2016
1/2017
5/2017
9/2017
1/2018
5/2018
9/2018
1/2019
5/2019
9/2019
1/2020
5/2020
9/2020
1/2021
5/2021
9/2021
1/2022
5/2022
9/2022
Source: Bloomberg, MNCS Research Source: Bloomberg, MNCS Research

China’s swift pivot to Exhibit 6. Despite India’s recovering national production, there is a gap to be filled in FY23F
expansive economic
activity hastily depleted Inventory (LHS) Import (RHS)
their coal inventories, and
60 6000
with sustained recovery
ahead, coal imports are 50 5000
expected to fill the
demand gap. 40 4000

thousand tons
mn tons

30 3000

20 2000
India’s thermal coal import
saw a vast 14.7% YoY spike 10 1000
in FY22, most of which
originated from Indonesia. 0 0
For FY23E, imports are
3/2016
6/2016
9/2016

3/2017
6/2017
9/2017

3/2018
6/2018
9/2018

3/2019
6/2019
9/2019

3/2020
6/2020
9/2020

3/2021
6/2021
9/2021

3/2022
6/2022
9/2022
12/2016

12/2017

12/2018

12/2019

12/2020

12/2021

12/2022
expected grow 3-6% YoY
to help the populace hold
through the severe heat
Source: Bloomberg, MNCS Research
waves of March – May
2023. There is still leeway
for c. 150mn tons of coal Exhibit 7. ADRO is currently traded below its 5-year STD-2 EV/EBITDA
imports to fulfill demand,
without accounting the 7 EV/EBITDA Mean STD-1 STD-2 STD+1 STD+2
heatwave spike.
6

0
01/03/18 01/03/19 01/03/20 01/03/21 01/03/22 01/03/23

Source: Company, MNCS Research

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Exhibit 8. ADRO financial highlights

Income Statement Balance Sheet

USD mn 2020 2021 2022 2023F 2024F USD mn 2020 2021 2022 2023F 2024F

Revenue 2,534.84 3,992.72 8,102.40 7,525.02 6,461.58 Cash and cash equivalents 1,173.70 1,811.14 4,067.36 3,704.32 3,963.69

Cost Of Revenue 1,958.11 2,222.97 3,449.43 4,085.88 3,763.19 Trade Receivables 248.24 586.16 664.97 617.59 669.74

Gross Profit 576.73 1,769.75 4,652.97 3,439.14 2,698.39 Inventory 105.13 125.74 199.20 221.21 208.99

Other Current Assets 204.79 315.10 387.78 360.44 310.08

Operating Expenses 165.38 185.05 375.49 471.15 400.66
Total Current Assets 1,731.87 2,838.13 5,319.31 4,903.56 5,152.50
Other Operating Expenses 126.45 56.42 (30.87) 75.25 64.62
Fixed Assets - net 2,908.93 2,614.59 2,485.25 2,571.12 2,642.54
Operating Profit 284.90 1,528.28 4,308.35 2,892.75 2,233.12
Other Non-Current Assets 1,740.77 2,134.22 2,977.75 2,820.92 2,532.06
EBITDA 713.98 1,990.16 4,786.30 3,186.81 2,541.62
Total Non-Current Assets 4,649.70 4,748.80 5,463.00 5,392.03 5,174.60

TOTAL ASSETS 6,381.57 7,586.94 10,782.31 10,295.59 10,327.10

Finance Cost 89.43 83.33 89.31 84.93 75.72
Trade Payables 214.27 272.41 333.21 447.50 412.28
Finance Income 35.71 34.00 47.65 91.34 86.31
Short-term Debt 642.61 270.74 175.70 132.85 145.83
Other Income (Expenses) (9.02) 7.30 209.54 94.42 109.80
Other current liabilities 428.05 1,223.92 1,298.55 1,038.46 1,136.25
Profit Before Income Tax 222.17 1,486.25 4,476.22 2,993.57 2,353.50
Total Current Liabilities 1,284.93 1,767.06 1,807.46 1,618.81 1,694.36

Long-term Debt 128.51 596.48 706.06 545.95 674.07

Income Tax Expenses 63.66 457.66 1,645.10 1,198.92 942.58
Other Long-term liabilities 1,156.42 1,170.58 1,101.40 1,072.86 1,020.29
Profit of the Year 158.51 1,028.59 2,831.12 1,794.64 1,410.93
Total Long-term Liabilities 1,284.93 1,767.06 1,807.46 1,618.81 1,694.36

Total Equity 3,951.71 4,458.32 6,527.34 6,790.52 6,953.28

Minority Interest (11.58) (95.10) (338.04) (338.04) (338.04)
TOTAL LIABILITY AND
EQUITY 6,381.57 7,586.94 10,782.31 10,295.59 10,327.10
Net Profit 146.93 933.49 2,493.08 1,456.60 1,072.88
Cash Flow Ratios
USD mn 2020 2021 2022 2023F 2024F USD mn 2020 2021 2022 2023F 2024F

Net Income 146.93 933.49 2,493.08 1,456.60 1,072.88 Revenue Growth -26.68% 57.51% 102.93% -7.13% -14.13%

Depreciation 429.09 461.88 477.95 294.07 308.50 Gross Profit Growth -40.21% 206.86% 162.92% -26.09% -21.54%

Operating Profit Growth -53.87% 436.43% 181.91% -32.86% -22.80%

Change in Working Capital (34.15) (300.38) (91.48) 139.66 (75.16)
Net Income Growth -63.65% 535.34% 167.07% -41.57% -26.34%
Change in others (159.61) 416.94 1,028.50 (607.69) (138.49)

CFO 736.43 1,511.93 3,908.05 1,282.64 1,167.74

Current Ratio (x) 1.51 2.08 2.17 2.60 3.07
Short Term Investment (13.66) (1.57) (4.20) 3.17 5.83
Quick Ratio (x) 1.42 1.99 2.09 2.48 2.94
Long Term Investment 94.70 (241.46) (445.52) 91.04 167.67
Receivable Days 35.75 53.58 29.96 29.96 37.83
Capex (81.37) (167.54) (348.61) (379.93) (379.93)
Inventory Days 19.60 20.65 21.08 19.76 20.27
Change in other 28.72 (150.42) (393.81) 62.63 115.35
Payable Days 39.94 44.73 35.26 39.98 39.99
CFI (359.34) (560.98) (1,192.14) (223.10) (91.07)
Debt to EBITDA (x) 2.71 0.57 0.20 0.23 0.37
Short Term Debt 81.66 (368.75) (76.03) (40.51) 17.28

Long Term Debt (509.00) 502.56 116.95 (157.62) 132.70

GPM 22.75% 44.32% 57.43% 45.70% 41.76%

Dividend (100.12) (496.82) (800.00) (1,165.28) (858.31) OPM 11.24% 38.28% 53.17% 38.44% 34.56%

Other (300.28) 49.50 383.15 (59.16) (108.97) EBITDA Margin 28.17% 49.84% 59.07% 42.35% 39.33%

CFF (777.97) (313.50) (459.69) (1,422.57) (817.30) NPM 5.80% 23.38% 30.77% 19.36% 16.60%

Net Cash Increase (400.87) 637.44 2,256.22 (363.03) 259.36 ROA 2.30% 12.30% 23.12% 14.15% 10.39%

Closing Balance 1,173.70 1,811.14 4,067.36 3,704.32 3,963.69 ROE 3.72% 20.94% 38.19% 21.45% 15.43%

Sources: Company, MNCS Research

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MNC Research Industry Ratings Guidance

OVERWEIGHT: Stock's total return is estimated to be above the average total
return of our industry coverage universe over next 6-12 months
NEUTRAL: Stock's total return is estimated to be in line with the average total
return of our industry coverage universe over next 6-12 months
UNDERWEIGHT: Stock's total return is estimated to be below the average total
return of our industry coverage universe over next 6-12 months

MNC Research Investment Ratings Guidance

BUY : Share price may exceed 10% over the next 12 months
HOLD : Share price may fall within the range of +/- 10% of the next 12 months
SELL : Share price may fall by more than 10% over the next 12 months
Not Rated : Stock is not within regular research coverage

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