The JCI July 27, 2020
Jᴜʟʏ 27, 2020
* Tʜᴇ JCI ᴛʀᴀᴅɪɴɢ ʀᴀɴɢᴇ : 5,040ᴘᴛ – 5,150ᴘᴛ ( Fʀɪᴅᴀʏ ᴄʟᴏsᴇ: 5,083ᴘᴛ )
* Wᴀʟʟ Sᴛʀᴇᴇᴛ ᴇɴᴅᴇᴅ ʟᴏᴡᴇʀ ʙʏ sᴏᴍᴇ 1% ᴏɴ ʜᴇɪɢʜᴛᴇɴᴇᴅ Uɴɪᴛᴇᴅ Sᴛᴀᴛᴇs (US) ᴀɴᴅ Cʜɪɴᴀ ᴛᴇɴsɪᴏɴs
* Tʜᴇ JCI ɪs ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ ꜰʟᴜᴄᴛᴜᴀᴛᴇ ʙᴜᴛ sᴜᴘᴘᴏʀᴛᴇᴅ ʙʏ sᴛᴀʙʟᴇ USDIDR ᴀɴᴅ ᴏɪʟ ᴄʟᴏsᴇ
Morning,
The Jakarta Composite Index (JCI) today (27/7) is expected to be in the range of 5,040pt – 5,150pt in a consolidation phase but stable USDIDR and liquidity support. Meanwhile, Friday last week(23/7) in Wall Street the DJIA ended lower by 182 points or 0.7% at 26,470pt as political risks among the US and China rose.
𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐒𝐞𝐜𝐭𝐨𝐫
𝐒𝐭𝐚𝐛𝐥𝐞 𝐚𝐧𝐝 𝐇𝐢𝐠𝐡𝐞𝐫 𝐰𝐨𝐫𝐥𝐝 𝐭𝐡𝐞𝐫𝐦𝐚𝐥 𝐜𝐨𝐚𝐥 𝐩𝐫𝐢𝐜𝐞 𝐟𝐢𝐧𝐝𝐬 𝐢𝐭𝐬 𝐰𝐚𝐲 𝐭𝐨 𝐞𝐥𝐞𝐯𝐚𝐭𝐞 𝐝𝐨𝐦𝐞𝐬𝐭𝐢𝐜 𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐢𝐧𝐠 𝐩𝐨𝐰𝐞𝐫
𝐀𝐃𝐑𝐎: 𝐑𝐞𝐚𝐝𝐲 𝐭𝐨 𝐫𝐢𝐝𝐞 𝐨𝐧 𝐚𝐧 𝐮𝐩𝐰𝐚𝐫𝐝 𝐜𝐨𝐚𝐥 𝐩𝐫𝐢𝐜𝐞 𝐭𝐫𝐞𝐧𝐝__𝐌𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐨𝐮𝐫 𝐁𝐔𝐘 𝐜𝐚𝐥𝐥__𝟏𝟐-𝐌 𝐓𝐏 𝐨𝐟 𝐈𝐃𝐑𝟏,𝟒𝟖𝟎
Adaro Energy (ADRO) has been among our preference among listed coal-mining shares in the Indonesia exchange. ADRO latest financials differed from our last estimate (see our published report dated 7/11/2018) also as a result much lower prevailing world coal price. We adjusted our earnings projections and came with a revised-revenue projections this year of USD3.2bn (2019: USD3.5bn), and USD3.6bn for the year 2021. Our operational metrics for FY20 include an overall estimated average selling price (ASP) of the company’s coal at USD55/tonne (1Q20: USD52.2/tonne, FY21E: USD60/tonne) with sales volume of 58mn tonnes (1Q20:14.4mn tonnes, FY21E: 60.8mn tonnes). At the other end, we expect the company to maintain its current debt level at a total gearing of 44%.
Factoring lower free cash flow to reflect lower total ASP to USD60/tonne (previously USD105/tonne) and lower WACC to 10.3% (previously 12%), we came to an equity value per share of IDR1,480 that we set as the current 12-Month target price for the counter, a potential upside of 36% from Friday closing price of IDR1,090/share.
ADRO is well-positioned both in domestic and within world scope. Aside from the company scale which is ranked second in terms of production rates in Indonesia (ranked 1st of Bumi Resources at 87.7mn tonnes in 2019), ADRO is also being in a most favorable spot in terms of 1) sophistication of environmentally-friendly coal products, 2) controls over supply-chains for timely delivery, 3) producing a mixture of metallurgical to balance those of thermal ones, 4) track record of marketing bases that included risk-favored pricing tools, mixture of clients, and mostly with longer term contracts.
Indonesia coal – mining counters is a must have in the list of investors’ selection with portion being adjusted to suit each’s risk-preference, in our view, despite its relatively higher volatility as compared to the other more resilient ones for the following reasons.
1) Coal use as the major fuels for power is expected to continue, despite as yet the green campaigns, and especially during the current pandemic climate,. To replace the low-cost energy based on coal seems unviable at present for to find better alternative fuels, huge funds is necessary to finance further researches, not to mention tax revenues and employment that are forgone. Indeed, during the climate talk in 2019 that took place in Germany, 20 (twenty) countries agreed to phase-out coal by 2030, but this group did not include any of the world’s biggest coal producers: China, India, the United States, Australia, Indonesia, Russia, South Africa and Germany.
2) Indonesia listed coal mining producers are global players in terms of production rates that produce mostly thermal coal of calorific value in the range of 5,100kkal – 6,100kkal or ones that is most suitable to produce electricity.
3) Indonesia exported 375mn tonne of coal last year (2018: 343mn) worth of USD20bn (2018:USD20.6bn), made-up of 13% of total non-oil and gas export values, and made-up 80% of foreign exchange from mining exports. Inherent with this contribution, the country earns duties, income tax, value added-tax , on top of direct financial benefit to coal – explorers and their labors. Therefore, positive trend of coal price create multiplier effects in domestic economy , through private consumptions.
𝐋𝐚𝐭𝐞𝐬𝐭 𝐭𝐡𝐞𝐫𝐦𝐚𝐥-𝐜𝐨𝐚𝐥 𝐩𝐫𝐢𝐜𝐞 𝐭𝐫𝐞𝐧𝐝
Last close was at USD52/tonne which was also the year-low in late April and is currently at 30% lower as compared to the same spot last year. Analysts cited that coal price is set to recover given the tightening of oversupply as well as demand recovery which we somehow agree. New investments on coal exploration and productions, as in any other commodities, face challenging current situation, in our view.
At the other end, Friday last week the WTI price closed higher by 22 cents to USD41.3/barrel by support of Eurozone’s July Markit PMI of 51.1pt, fastest in 1.5 years time and higher-than-consensus’ estimate of 50.1. Meanwhile the USDIDR closed at IDR14.614 vs. IDR14.669 the previous one.
We advise the following recommendation , for both trading and longer-time investment purpose. 𝐀𝐀𝐋𝐈, 𝐋𝐒𝐈𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘨𝘳𝘪, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘜𝘯𝘥𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐔𝐍𝐓𝐑, 𝐈𝐓𝐌𝐆, 𝐀𝐃𝐑𝐎, 𝐏𝐓𝐁𝐀 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘢𝘭 𝘔𝘪𝘯𝘪𝘯𝘨, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐆𝐆𝐑𝐌, 𝐔𝐍𝐕𝐑, 𝐈𝐂𝐁𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘯𝘴𝘶𝘮𝘦𝘳, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐀𝐒𝐈𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘶𝘵𝘰𝘮𝘢𝘵𝘪𝘷𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐚𝐧𝐝 𝐀𝐂𝐄𝐒, 𝐒𝐂𝐌𝐀, 𝐌𝐀𝐏𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘛𝘳𝘢𝘥𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵),𝐚𝐧𝐝 𝐓𝐊𝐈𝐌 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘉𝘢𝘴𝘪𝘤 𝘐𝘯𝘥𝘶𝘴𝘵𝘳𝘺, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵).
Cheers,