COMPANY UPDATE INDONESIA

September 1, 2010 Research Division

PT Adaro Energy Tbk

Weak 1H10 results, but FY11 looks good
BUY

Weak 1H10 results, distorted by non-recurring & other expenses
Last Price (Rp) ADRO’s 1H10 earnings were booked below our expectations. Net income was
1,900
reported of Rp 1,153 bn (-49% yoy, -66% qoq), only accounts for 32% our
Fair Value (Rp) 2,600 ( +32.1%)
FY10 forecast. But top line and production of 21.6 Mt account for 45%-49%
our FY10 forecasts, in line. Strengthened IDR led to translation forex loss
and other non-recurring or non-operational expenses come from differences
Stock Data
on annual internal tax audit from prior year, which in total caused higher
Bloomberg ADRO.IJ
effective tax rate to 55% vs 48% our FY10 target. ADRO’s 1H10 core profit of
Issued Shrs. (m) 31,985
Rp 1,357 bn account for 37%-38% our FY10 forecast, which is tolerable, but
Market Cap (Rp bn) 60,773
still lower than our expectations.
52 W High / Low Rp 2,250 / Rp 1,310
Major Shareholders :
Bad performance in 2Q10 due to bad weather
PT Adaro Strategic
Investment 43.9%
ADRO’s 2Q10 performance quite weak. Net income of Rp 292 bn dipped by
Garibaldi Thohir 6.46% 74% yoy and 66% qoq. Lower margin mainly come from higher mining cost-
Others 9.93% higher SR, lower ASP and strenghtened IDR. Common practice most
Public 39.7% contractors tend to push the overburden removal in the first half period and
will increase the excavation in the following period, in our view. Therefore,
unsurprisingly that actual 2Q10 SR increased to 5.6 vs 4.3 in 1Q10. However,
Earnings Estimates sales volume in 2Q10 still grew by 13.5% yoy.
2010F 2011F
Net Profit (Rp bn)
Revisit model – lower earnings, but FY11 coal price looks favourable
AAA Estimate 3,362 5,336 We revisit our model on higher SR, strengthened IDR, and higher effective
Consensus 3,874 5,689 tax. We cut our earnings forecasts to Rp 3,362 bn in FY10 and Rp 5,336 bn,
EPS (Rp) or down 9.6% and 7.3% respectively. We aim FY10 EBITDA margin at 37% vs
AAA EPS 105 166
35% in 1H10, since we expect better 2H10 results would come from higher
Consensus EPS 121 179
ASP. So far 30% of ADRO’s volumes are index linked and ADRO has not
locked any fixed prices for next year. But ADRO indicates the benchmark
price from Japanese refrence price this year increase to US$ 98/ton vs US$
70/ton in 2009. It would be positive catalyst for next year performance.

400
ADRO

Lower TP – Reiterate BUY
JCI
Based on our revisited model and lower WACC of 12.7% (from 13.1% due to
300
lower Rf of 9%), we derive new TP of Rp 2,600 per share. We had expected
200
that ADRO’s FY10 valuation is not cheap anymore, similar with PTBA. But
FY11 valuation still looks attractive. Our TP implies at 15.1x P/E FY11F and
100 5.9x EV/EBITDA FY11F, with potential upside of 32%. We reiterate our BUY
rating since ADRO stil have robust fundamental and positive FY11 outlook.
- Key downside risks are: 1.) lower coal price, 2.) higher mining cost, 3.)
Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10
lower demand and 4.) delayed on its OLC project
FINANCIAL SUMMARY

Rp Bn 2008 2009 2010F 2011F 2012F

Herman Koeswanto (ext 218)
Sales 18,092.5 26,938.0 26,768.2 35,123.3 39,042.6
Herman.koeswanto@aaasecurities.com
Operating Profit 4,211.9 9,928.5 8,282.7 12,286.9 14,666.6
PT. Andalan Artha Advisindo Sekuritas
Net Profit 887.2 4,367.0 3,362.9 5,336.5 6,566.6
Artha Graha Building 26th Floor
EPS (Rp) 27.72 136.47 105.09 166.76 205.20
Jl. Jend. Sudirman Kav. 52 – 53
PER (x) 68.5 13.9 18.1 11.4 9.3
Jakarta 12190
Ph : +62 21 515 2640 PBV (x) 4.3 3.5 3.0 2.5 2.1
Fax : +62 21 515 2644 EV/EBITDA (X) 15.0 5.9 6.8 4.5 3.5
Dividend Yield 0.6% 1.5% 1.4% 2.2% 2.7%
Source : Company; AAA Securities

PT Andalan Artha Advisindo Sekuritas 1

COMPANY UPDATE INDONESIA
September 1, 2010 Research Division

Figure 1. Interim Results

Rp bn 1H10 1H09 % yoy 2Q10 2Q09 % yoy 1Q09 % qoq
Revenue 11,984.84 12,896.89 -7% 5,705.84 6,363.89 -10% 6,279.00 -9%
Gross profit 3,946.00 5,444.44 -28% 1,700.00 2,615.10 -35% 2,246.00 -24%
Operating profit 3,569.69 4,930.85 -28% 1,512.69 2,484.41 -39% 2,057.00 -26%
net profit 1,152.87 2,248.64 -49% 291.87 1,103.64 -74% 861.00 -66%

gross margin 33% 42% -22% 30% 41% -27% 36% -17%
operating margin 30% 38% -22% 27% 39% -32% 33% -19%
net margin 10% 17% -45% 5% 17% -71% 14% -63%
Coal production (mmt) 21.6 18.0 20% 10.3 9.1 13% 10.3 0%
Coal sales volume (mmt) 22 17.8 22% 10.3 9.1 13% 10.3 0%
ASP (US$/ton) 56 62 -10% 55 62 -10% 55 1%
SR (bcm/ton) 4.9 5.3 -8% 5.6 6.0 -7% 4.3 31%
source: company, AAA Securities

Figure 2. Key assumptions and forecast changes

2010F 2011F 2012F
Coal production (mmt) 44.0 53.0 58.0
% change 0.0% 0.0% 0.0%
ASP (US$/ton) 58.0 61.8 62.8
% change 0.0% 0.0% 0.0%
SR 5.4 5.0 4.9
% change 2.4% 2.4% 2.4%
Cash cost (US$/ton) - ex royalties 33.7 34.7 32.9
% change 0.3% 1.7% 1.0%
IDR/US$ 9,200 9,500 9,500
% change -1.1% 0.0% 0.0%
Effective tax rate 52% 52% 52%
% change 8.3% 8.3% 8.3%

Net profit (Rp bn) 3,362.9 5,336.5 6,566.6

% change -9.6% -7.3% -7.5%
source: AAA Securities

Figure 3. Blended Valuation

Previous TP New TP
DCF Method 2,498 2,238
P/E multiple 2,879 2,668
EV/EBITDA multiple 2,919 2,785

average 2,800 2,600

source: AAA Securities

PT Andalan Artha Advisindo Sekuritas 2

COMPANY UPDATE INDONESIA
September 1, 2010 Research Division

Figure 4. Quaterly coal production Figure 5. Quarterly SR

13.0 6.5
12.1 6.0
12.0 11.4 6.0
5.6 5.6
11.0 10.5 10.5
10.260 5.5 5.5
9.9 9.8
10.0
9.0 9.0 5.0 5.0 5.0 5.0 5.0
4.6 4.5
9.0 8.4 4.4 4.8
4.6 4.3
4.5
8.0 4.0 4.1
4.3 4.0 4.3 4.3
7.0 4.0

6.0 3.5

5.0
3.0
4.0 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210
Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210
Actual SR Planned SR

source: company source: company, AAA Securities

Figure 6. Forward P/E Band Figure 7. Correction means buying opportunity

4,000 20.0
18.0
3,500 20x average +
16.0
3,000
target price 16x 14.0
2,500 average
12.0
2,000 12x 10.0
1,500 8.0 average -
8x
1,000 6.0

4x 4.0
500
2.0
-
-
7 /1 8 /2 0 0 8
1 0 /1 8 /2 0 0 8
1 /1 8 /2 0 0 9
4 /1 8 /2 0 0 9
7 /1 8 /2 0 0 9
1 0 /1 8 /2 0 0 9
1 /1 8 /2 0 1 0
4 /1 8 /2 0 1 0
7 /1 8 /2 0 1 0
1 0 /1 8 /2 0 1 0
1 /1 8 /2 0 1 1
4 /1 8 /2 0 1 1
7 /1 8 /2 0 1 1
1 0 /1 8 /2 0 1 1

7 /1 8 /2 0 0 8

9 /1 8 /2 0 0 8

1 1 /1 8 /2 0 0 8

1 /1 8 /2 0 0 9

3 /1 8 /2 0 0 9

5 /1 8 /2 0 0 9

7 /1 8 /2 0 0 9

9 /1 8 /2 0 0 9

1 1 /1 8 /2 0 0 9

1 /1 8 /2 0 1 0

3 /1 8 /2 0 1 0

5 /1 8 /2 0 1 0

7 /1 8 /2 0 1 0

source: AAA Securities source: AAA Securities

PT Andalan Artha Advisindo Sekuritas 3

COMPANY UPDATE INDONESIA
September 1, 2010 Research Division

Income statement
Year-end 31 Dec (Rp bn) 2007 2008 2009 2010F 2011F 2012F
Sales 11,592.6 18,092.5 26,938.0 26,768.2 35,123.3 39,042.6
COGS 9,089.2 13,149.3 15,900.1 17,383.2 21,390.0 22,768.1
Gross profit 2,503.4 4,943.2 11,037.9 9,385.0 13,733.4 16,274.4

EBITDA 2,981.7 4,541.3 11,084.3 10,010.1 14,237.0 16,835.1

Operating expense 250.9 731.4 1,109.4 1,102.4 1,446.4 1,607.8

Operating profit 2,252.5 4,211.9 9,928.5 8,282.7 12,286.9 14,666.6

Pre-tax profit 947.0 2,924.7 8,578.1 7,006.0 11,117.6 13,680.3

Income tax - net 656.9 1,602.0 4,119.1 3,643.1 5,781.2 7,113.8

Net profit 88.5 887.2 4,367.0 3,362.9 5,336.5 6,566.6

EPS (Rp) 2.77 27.72 136.47 105.09 166.76 205.20
-9.6% -7.3%

Balance sheet
Year-end 31 Dec (Rp bn) 2007 2008 2009 2010F 2011F 2012F
Assets
Cash and equiv 2,630.8 3,511.9 11,274.6 8,321.2 10,123.8 12,010.2
Receivables 1,610.9 2,349.9 2,903.6 2,933.5 3,849.1 4,278.6
Inventories 238.1 304.7 250.5 357.2 439.5 467.8
Others 517.9 1,690.3 1,408.0 990.0 1,036.6 1,128.5
Total current assets 4,997.7 7,856.8 15,836.7 12,601.9 15,449.0 17,885.2
Net fixed assets 3,558.7 5,924.2 7,415.7 8,554.8 10,325.0 11,411.1
Mining properties 118.4 10,470.2 9,791.7 9,266.0 8,740.4 8,214.7
Goodwill 1,225.5 9,128.4 9,091.8 8,591.0 8,090.3 7,589.6
Other assets 4,788.4 340.6 329.7 179.7 173.1 166.4
Total assets 14,688.7 33,720.2 42,465.5 42,389.5 45,973.8 48,463.2

Liabilities and equities

Payables 1,688.2 2,641.3 2,168.1 2,857.5 3,516.2 3,742.7
ST. debt and curr. maturity 1,518.9 2,029.3 2,379.8 1,957.9 1,558.9 1,123.1
Other current liabilities 1,910.9 1,999.9 3,321.0 2,006.0 2,309.4 2,409.1
LT. debt 5,907.4 9,009.6 13,475.9 13,410.8 12,022.2 9,285.7
Other long term liabilities 954.4 3,961.3 3,481.5 2,189.7 2,597.2 3,007.9
Total Liabilities 11,979.7 19,692.5 24,953.5 22,421.9 22,003.9 19,568.4

Shareholders' equity 2,150.6 14,009.2 17,445.4 19,967.5 23,969.9 28,894.8

BVPS (Rp) 67.2 438.0 545.4 624.3 749.4 903.4

Valuation
Year-end 31 Dec 2007 2008 2009 2010F 2011F 2012F
PER (x) 686.7 68.5 13.9 18.1 11.4 9.3
PBV (x) 28.3 4.3 3.5 3.0 2.5 2.1
EV/EBITDA (x) 22.0 15.0 5.9 6.8 4.5 3.5
EV/Sales (x) 5.7 3.8 2.4 2.5 1.8 1.5
Dividend yield (%) 0.0% 0.6% 1.5% 1.4% 2.2% 2.7%
source: company, AAA securities

PT Andalan Artha Advisindo Sekuritas 4

COMPANY UPDATE INDONESIA
September 1, 2010 Research Division

Cashflow Statement Analysis

Year-end 31 Dec (Rp bn) 2007 2008 2009 2010F 2011F 2012F
CFs from operation
Net profit 88.5 887.2 4,367.0 3,362.9 5,336.5 6,566.6
Depreciation/amortz. 693.1 1,197.7 1,631.1 1,911.0 2,106.2 2,315.2
Change in working capitals 16.9 147.6 -972.7 552.8 -339.3 -231.3
CFs from operation 1,976.0 1,149.0 6,628.9 4,929.7 7,360.1 8,658.1

CFs from investments -2,037.2 -13,673.7 -1,704.3 -6,488.7 -2,435.9 -1,957.7

CFs from financing activ. -555.0 14,044.1 3,934.2 -1,394.4 -3,121.7 -4,814.0
Net inc/(dec) in cash -616.2 1,519.4 8,858.8 -2,953.4 1,802.5 1,886.5

Cash at end period 2,630.8 3,511.9 11,274.6 8,321.2 10,123.8 12,010.2

DPS 0 12 29 26 42 51

Key ratio analysis

Year-end 31 Dec 2007 2008 2009 2010F 2011F 2012F
Profitability
Gross Margin 22% 27% 41% 35% 39% 42%
EBIT margin 19% 23% 37% 31% 35% 38%
EBITDA margin 26% 25% 41% 37% 41% 43%
Pre-tax Margin 8% 16% 32% 26% 32% 35%
Net Income margin 1% 5% 16% 13% 15% 17%
ROA (%) 1% 4% 11% 8% 12% 14%
ROE (%) 7% 11% 28% 18% 24% 25%

Growth
Revenue 19% 56% 49% -1% 31% 11%
Operating Profit 29% 87% 136% -17% 48% 19%
EBITDA 41% 52% 144% -10% 42% 18%
Net Income -37% 902% 392% -23% 59% 23%

Solvability
Current ratio (x) 1.0 1.2 2.0 1.8 2.1 2.5
Quick ratio (x) 0.8 0.9 1.8 1.6 1.9 2.2
Debt to equity (x) 3.5 0.8 0.9 0.8 0.6 0.4
Debt/EBITDA (x) 2.5 2.4 1.4 1.5 1.0 0.6
Net Gearing Ratio 2.2 0.5 0.3 0.4 0.1 -0.1
source: AAA Securities

PT Andalan Artha Advisindo Sekuritas 5

COMPANY UPDATE INDONESIA
September 1, 2010 Research Division

PT Andalan Artha Advisindo Sekuritas

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Disclaimer : The information contained herein has been compiled from sources that we believe to be reliable.No warranty (express or implied) is made to
the accuracy or completeness of the information.All opinions and estimates included in this report constitute our judgement as of this date, without
regards to its fairness, and are subject to change without notice.This document has been prepared for general information only, without regards to the
specific objectives, financial situation and needs of any particular person who may receive it. No responsibility or liability whatsoever or howsoever arising
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