Adaro Energy Indonesia Tbk (ADRO) to Strengthen 4Q22 Performance

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- Adaro Energy Indonesia Tbk (ADRO) is expected to show a strong 4Q22 performance in line with full-year 2022 (FY22) projections. The company's thermal coal and coke sales volume increased in 3Q22 to 15.8/1Mt, rising 9/13% (QoQ) and 27/243% (YoY), driven by stronger production and improved logistics.

Indo Premier Securities' analyst team predicts that this performance will continue in 4Q22, aided by improved weather conditions. FY22 sales volume is expected to slightly surpass its target (56-60Mt). The team predicts a 2%/flat (QoQ) increase in thermal/coking coal sales volume in 4Q22, which will bring the total sales volume in FY22 to around 61Mt (101% of our FY22 estimate). With a higher average sales price (average USD92/t in 4Q22 vs USD81/t in 3Q22), revenue of USD8.4 billion in FY22 is expected, in line (100%) with projections and 108% of analyst consensus.


ADRO management has indicated a capital expenditure of USD600 million for organic business growth, primarily for heavy equipment procurement (for Balangan, MIP, and ADMR expansion). Meanwhile, capital expenditure growth is indicated at USD2.1 billion, for power plants (USD1 billion) and ADMR smelting and docks (USD1.1 billion). The FY23F capital expenditure assumption has been increased to USD2.8 billion (from USD1.9 billion) to reflect growth expenditure and assumes 70% debt financing.

Interest Increase

FY22F earnings projections are maintained, but FY23F/FY24F earnings are revised down by 2%/3% to reflect higher production volume of 63Mt (from 61Mt) in FY23F/FY24F, due to improved weather prospects. The revision also reflects the increase in capex to USD2.8 billion and additional debt financing (USD1.5 billion).


Indo Premier has cut ADRO's target price based on SOTP to Rp4,640 from Rp5,450 due to lower net profit, higher capex, and debt. However, the Buy recommendation is maintained as ADRO is currently traded with an EV-to-EBITDA ratio of 2.2 times (discounted 40% from the 10-year average).

'We expect the valuation from ADRO's growth projects (aluminum smelting plant, Kaltara industrial area) to mitigate the decline in ST coal price corrections,' said the analyst team. The main risk for ADRO stock is weaker coal prices than expected and project delays.

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