Equity Research

Company Update

Wednesday,16 October 2019

BUY Indo Tambangraya (ITMG IJ)

Maintain Enticing dividend play
Last price (IDR) 13,000 We cut our target price to IDR17,000 (based on DCF valuation with WACC of
Target Price (IDR) 17,000
13.8%) as we lower our coal price assumption. Nonetheless, we maintain our
BUY recommendation as we expect the company to continue distributing
Upside/Downside +30.8%
generous dividends. Assuming a stable payout ratio of 100% from the 1H19
Previous Target Price (IDR) 24,000 net profits, we expect the company to distribute interim dividends with a
yield of 7.0% based on yesterday’s closing price. Our target price implies 9.5x
Stock Statistics 2020F PE.
Sector Coal Mining
A sound dividend play with an attractive yield. The company is expected to
Bloomberg Ticker ITMG IJ distribute interim dividends from its 1H19 net profits of about USD71mn. In the
No of Shrs (mn) 1,130 past three years, the company distributed dividends with a payout ratio of
Mkt. Cap (IDRbn/USDmn) 14,689/1,037
100.0% with the announcement made in October and cum-date in November.
Assuming the company distributes all of the 1H19 net profits of USD71mn as
Avg. daily T/O (IDRbn/USDmn) 21.0/1.5 dividends (100% payout ratio), this will translate into a dividend yield of around
7.0% based on yesterday’s closing price.
Major shareholders (%)
Banpu Minerals 65.1
More volume and a lower SR are expected to sustain profits in 3Q19. While
the average Newcastle coal price declined by 14.3% qoq to USD68.9/ton in
Estimated Free Float 31.9 3Q19, we expect quarterly earnings in 3Q19 to be sustained given the
Estimated free float 31.9 expectation of 8.9% qoq higher quarterly production of 6.1mn tons and lower
EPS Consensus (USDcents)
costs with the company expected to book a lower stripping ratio of 11.1x in
3Q19 (2Q19: 11.6x). However, the 9M19 net profits are expected to be soft
2019F 2020F 2021F owing to lower coal prices and a higher SR even though coal production is
Danareksa 12.9 12.8 12.6 forecast to be around 11.4% yoy higher at 17.5mn tons.
Consensus 13.4 13.7 14.2 We expect coal prices to remain soft. While short-term coal prices will be
Danareksa/Cons (4.0) (6.9) (11.4) supported by potential delays in the restart of some nuclear power plants in
Japan due to maintenance and security requirements, uncertainty surrounding
ITMG relative to JCI Index China’s coal import policies (with the imports quota expected to be reached
toward the end of 2019) will put pressure on prices. Overall, we expect further
consolidation in the average coal price in 2020 with demand from developed
countries (Japan, South Korea and China) expected to decline further going
forward. We cut our coal price assumption to USD78/ton (from USD80/ton) for
2019 and to USD72/ton (from USD75/ton) for 2020, while maintaining our long-
term coal price assumption at USD70/ton.
Maintain BUY with a lower target price of IDR17,000. Given our lower coal
price assumption, we cut our 2019 – 2021 net profit forecast by 24.2 – 28.8%.
Hence, whilst also rolling over our valuation to 2020, we trim our target price
to IDR17,000 (based on DCF valuation with WACC of 13.8%). Despite expecting
coal prices to consolidate, we maintain our BUY recommendation on the stock
as the company will distribute generous dividends with a yield of 7.0% for 2020.
Source : Bloomberg Key Financials
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Revenue (USDmn) 1,690 2,008 1,836 1,837 1,820
EBITDA (USDmn) 448 493 250 255 256
EBITDA Growth (%) 64.3 10.3 (49.3) 1.7 0.7
Net profit (USDmn) 253 262 145 144 142
EPS (USDcents) 22.4 23.2 12.9 12.8 12.6
EPS growth (%) 93.3 3.7 (44.5) (0.8) (1.4)
BVPS (USDcents) 84.8 86.1 80.9 80.9 80.8
DPS (USDcents) 17.6 24.6 18.0 12.8 12.7
x Stefanus Darmagiri PER (x) 4.1 4.0 7.1 7.2 7.3
PBV (x) 1.1 1.1 1.1 1.1 1.1
(62-21) 5091 4100 ext. 3530
Dividend yield (%) 19.2 26.8 19.6 14.0 13.8
stefanus.darmagiri@danareksa.co.id EV/EBITDA (x) 1.5 1.4 2.9 2.8 2.7
Source : ITMG, Danareksa Estimates

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 Exhibit 1. Revenues and Growth Exhibit 2. Net Profits and Growth

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. Margins Exhibit 4. Gearing Level

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. ITMG’s ASP vs. Newcastle Price Exhibit 6. Better volume and lower SR may help to sustain earnings
USD/ton mn tons x
Newcastle Price ITMG Quarterly ASP
120 7 Production (LHS) Stripping Ratio (RHS) 14

110 13
6
100
12
90
5 11
80
70 10
4
60 9
50
3 8
40
3Q19F
1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Source: Company, Bloomberg Source: Company, Danareksa Sekuritas estimates

Exhibit 7. Historical interim dividend activities

Dividend / Dividend Payment 1H Net Profit Payout
Year Cum-Dividend Payment Date Description Book Year
Share (IDR) (USDmn) (USDmn) Ratio

2018 30-Oct-18 16-Nov-18 Interim 1st Half 2018 1,420 103.0 103.0 100.0%
2017 3-Nov-17 21-Nov-17 Interim 1st Half 2017 1,300 105.3 105.3 100.0%
2016 7-Nov-16 24-Nov-16 Interim 1st Half 2016 434 36.5 36.5 100.0%
2015 8-Oct-15 26-Oct-15 Interim 1st Half 2015 752 58.0 58.0 100.0%

Source: Companies

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 Exhibit 8. Change in our forecasts
New Previous Chg in forecast (%)
2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F
Coal sales volume, mn tons 26.5 27.5 28.0 26.5 27.5 28.5 0.0 0.0 (1.8)
Coal production volume, mn tons 23.5 24.5 25.0 23.5 24.5 25.5 0.0 0.0 (2.0)
Coal Price, USD/ton 78 72 70 80 75 70 (2.5) (4.0) 0.0
Blended Coal ASP, USD/ton 65 63 61 68 65 61 (3.6) (3.0) 0.0

Revenue, USDmn 1,836 1,837 1,820 1,900 1,890 1,843 (3.4) (2.8) (1.3)
EBITDA, USDmn 250 255 256 329 322 317 (23.9) (21.0) (19.0)
Net Profit, USDmn 145 144 142 204 195 187 (28.8) (26.1) (24.2)
Source: Danareksa Sekuritas estimates

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 Exhibit 9. Income Statement
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Revenue 1,690 2,008 1,836 1,837 1,820
COGS (1,184) (1,424) (1,492) (1,490) (1,474)
Gross profit 505 584 344 347 346
EBITDA 448 493 250 255 256
Oper. profit 388 432 191 189 187
Interest income 3 5 3 3 3
Interest expense (1) (1) 0 0 0
Forex Gain/(Loss) 0 (10) 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (28) (59) 0 0 0
Pre-tax profit 362 367 194 192 189
Income tax (109) (109) (48) (48) (47)
Minority interest 0 3 0 0 0
Net profit 253 262 145 144 142
Core Net Profit 253 311 145 144 142

Exhibit 10. Balance Sheet

Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Cash & cash equivalent 374 368 305 326 351
Receivables 195 236 173 163 152
Inventory 109 108 114 106 97
Other Curr. Asset 119 55 55 55 55
Fixed assets - Net 223 227 269 286 298
Other non-curr.asset 339 449 437 425 414
Total asset 1,359 1,443 1,354 1,361 1,366

ST Debt 0 0 0 0 0
Payables 161 209 178 186 193
Other Curr. Liabilities 167 181 181 181 181
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 73 83 83 83 83
Total Liabilities 401 473 442 450 456
Shareholder'sFunds 958 973 914 914 913
Minority interests 0 (3) (3) (3) (3)
Total Equity & Liabilities 1,359 1,443 1,354 1,361 1,366

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 Exhibit 11. Cash Flow
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Net income 253 262 145 144 142
Depreciation and Amort. 59 61 60 65 70
Change in Working Capital (125) 85 25 26 27
OtherOper. Cash Flow 95 (90) (3) (3) (3)
Operating Cash Flow 282 319 227 233 236

Capex (50) (58) (90) (70) (70)

Others Inv. Cash Flow 15 16 3 3 3
Investing Cash Flow (34) (42) (87) (67) (67)

Net change in debt 0 0 0 0 0

New Capital 0 0 0 0 0
Dividend payment (199) (278) (204) (145) (143)
Other Fin. Cash Flow (2) (5) 0 0 0
Financing Cash Flow (201) (283) (204) (145) (143)

Net Change in Cash 46 (6) (63) 21 26

Cash - begin of the year 328 374 368 305 326
Cash - end of the year 374 368 305 326 351

Exhibit 12. Key Ratios

Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Growth (%)
Sales 23.5 18.8 (8.6) 0.0 (0.9)
EBITDA 64.3 10.3 (49.3) 1.7 0.7
Operating profit 86.1 11.3 (55.9) (0.6) (1.5)
Net profit 93.3 3.7 (44.5) (0.8) (1.4)
Profitability (%)
Gross margin 29.9 29.1 18.7 18.9 19.0
EBITDA margin 26.5 24.6 13.6 13.9 14.1
Operating margin 23.0 21.5 10.4 10.3 10.3
Net margin 15.0 13.0 7.9 7.8 7.8
ROAA 19.7 18.7 10.4 10.6 10.4
ROAE 27.1 27.1 15.4 15.8 15.6
Leverage
Net Gearing (x) (0.4) (0.4) (0.3) (0.4) (0.4)
Interest Coverage (x) 489.4 334.9 0.0 0.0 0.0

Source : ITMG, Danareksa Estimates

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