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EQUITY RESEARCH

ADRO - Results Update - 01 November 2017


CIPTADANA SEKURITAS ASIA

BUY Adaro
Earnings inline despite revenue miss
TP: Rp2,350 (+28.8%)

Sector Coal ADRO 9M17 results: Efficiencies and ASP play


Adaro Energy Tbk (ADRO) posted USD372 mn (+78.1% YoY) of earnings in 9M17, on the
Bloomberg Ticker ADRO IJ
back of surging revenue and better margins. Revenue was up by 37.2% YoY to USD2.44 bn,
Share Price Performance
supported by growing ASP (+42.2% YoY to USD57.9/ton) while sales volume declined by
1.5% to 39.4 mn tons. Gross profit grew faster (+84.6% YoY) to USD859 mn, as COGS grew
Last price (Rp) 1,825 slower than revenue. Operating profit was USD731 mn, which is more than double YoY. On
Avg. daily T/O (Rpbn/USDmn) 61.9/4.6 quarterly basis, earnings were up by 19.8% QoQ to USD150 mn on the back of higher
revenue and efficiencies on operating expenses. Revenue climbed by 8.1% QoQ to
3m 6m 12m
USD890mn, while gross profit grew slower (+3.7% QoQ to USD327 mn) as COGS pace was
Absolute (%) -2.4 17.0 12.0 faster than revenue. Efficiencies in professional fee pushed operating expenses down by
Relative to JCI (%) -6.4 11.3 2.2 31.1% QoQ to USD35 mn, and propelled operating income to grow by 10.3% QoQ to
USD292 mn.
52w High/Low price (Rp) 1,995/1,395
The highest production and sales volume
2,500 20%
ADRO posted the highest quarterly production and sales volume in 3Q17. Production
15%
volume hiked by 7.2% QoQ to 14.2 mn tons (vs 13.3 mn tons, and 11.9 mn tons in 2Q17 and
2,000
10%
1Q17, respectively), while coal sales volume was also amounted to 14.2 mn tons in 3Q17
5%
(vs 13.2 mn tons and 12.0 mn tons in 2Q17 and 1Q17). In 4Q17, we expect the company to
1,500
0%
produce 16 mn tons to reach the full-year target of 55.4 mn tons. Along with that, we
1,000 -5%
expect the company’s stripping ratio to increase to 5.46x in 4Q17 (vs 5.02x in 3Q17) to
-10%
reach management guidance of 4.85x for full year 2017. We still see higher profitability in
500 4Q17, although mining costs will rise given the increasing stripping ratio, as the rising
-15%
0 -20%
mining costs will be offset by higher ASP.
Dec-16

Feb-17
Oct-16

Oct-17
Sep-17
Nov-16

Achieves net cash position


Aug-17
Mar-17

Jul-17
May-17
Jan-17

Apr-17

Jun-17

The company repaid its bank loan and brought down interest-bearing debt by 7% YoY to
USD1.38 bn (vs USD1.48 bn in 9M16). In 9M17 ADRO repaid USD96 mn of bank loans and
ADRO 1yr Rel. to JCI (RHS)
combined with higher operating cash flow, the company was able to achieve net cash
Outstanding shrs (mn) 31,986 position of USD141 mn (vs net debt of USD511 mn in 9M16). We expect the company’s net
cash position to strengthen as it will continue to repay its debt around USD171 mn per
Mkt. Cap (Rpbn/USDmn) 58,374/4,298 year during 2017 – 2019.
Estimated free float (%) 15.7
Commence infrastructure construction at Adaro Metcoal sites
Major shareholders Beside Haju mine that is already in operation at Adaro MetCoal sites, the company expects
Adaro Strategic 43.9% Lampunut mine to start producing hard coking coal in late 2018 or early 2019. The mine
has an expected total resource of 120 mn tons of which 11 mn tons is hard coking coal.
Thohir Garibaldi 6.2%
Recently, the company has appointed PT Petrosea Tbk (PTRO) to built roads, bridge, as
well as earthwork construction at Lampunut.

EPS Consensus Reiterate Buy with unchanged TP of Rp2,350/share


Ciptadana Cons. % Diff
We maintain our earnings forecast as well as our TP of Rp2,350/share as the company’s
9M17 earnings were in line with our expectations. Our TP implies 2018F PER of 8.4x,
2017F 1.6 1.4 13.4 slightly above -0.5stdev of 5 years historical mean. We keep our Buy rating intact, as our
2018F 2.1 1.4 51.1 TP still provides 28.8% potential upside.
2019F 2.2 1.5 49.5 Exhibit 1 : Financial Highlights
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue (USDmn) 2,684 2,524 3,602 3,971 4,332
Operating profit (USDmn) 332 588 908 1,172 1,221
Net profit (USDmn) 152 335 508 676 717
EPS (US$Cents) 0.5 1.0 1.6 2.1 2.2
EPS growth (%) -14.3 119.5 51.8 33.2 6.1

Kurniawan Sudjatmiko EV/EBITDA (x) 8.2 4.9 3.4 2.4 2.0

+62 21 2557 4800 ext.739 PER (x) 28.7 13.1 8.5 6.3 6.0
sudjatmikokurniawan@ciptadana.com PBV (x) 1.5 1.4 1.2 1.1 0.9
Dividend yield (%) 1.2 2.7 2.2 3.4 4.5

http://www.ciptadana.com ROE (%) 5.3 10.6 14.3 16.6 15.6


Source : ADRO, Ciptadana Estimates

Please see analyst certification and other important disclosures at the back of this report 2
EQUITY RESEARCH
ADRO - Results Update - 01 November 2017
CIPTADANA SEKURITAS ASIA

Exhibit 2: ADRO 9M17 results


(USD mn) 9M17 9M16 YoY Chg 2017F Achv 3Q17 2Q17 QoQ Chg
Revenue 2,439 1,778 37.2% 3,602 67.7% 890 823 8.1%
COGS -1,579 1,313 20.3% -563 -508 10.9%
Gross profit 859 466 84.6% 943 91.1% 327 315 3.7%
Gross margin (%) 35.2 26.2 9.1 36.7 38.3 -1.6
Operating exp. -128 -108 18.5% -35 -50 -31.1%
Operating profit 731 357 104.6% 908 80.5% 292 265 10.3%
Opr. margin (%) 30.0 20.1 9.9 32.8 32.2 0.7
Others-net -24 -8 194.6% -16 -15 6.2%
Profit before tax 707 349 102.5% 808 87.5% 276 250 10.6%
Income tax -293 -138 112.0% -111 -111 0.5%
Minority interest -41 -2 2,229.7% -15 -14 7.9%
Net profit 372 209 78.1% 508 73.3% 150 125 19.8%
Net margin (%) 15.3 11.8 3.5 16.9 15.2 1.6
Source : ADRO, Ciptadana Estimates

Exhibit 3: Operational highlights


O perational results 9M17 9M16 Y oY 3Q 17 2Q 17 Q oQ 2017F Achievement
Production volume (mn ton) 39.4 39.3 0.1% 14.2 13.3 7.2% 55.4 71%
Sales volume (mn ton) 39.4 40.1 -1.5% 14.2 13.2 7.0% 56.1 70%
O verburden removal (mbcm) 183.2 174.8 4.8% 71.4 57.0 25.2% 258 71%
Stripping ratio (x) 4.65 4.44 4.6% 5.02 4.30 16.7%
C oal ASP (US$/ton) 57.9 40.8 42.0% 59.1 58.3 1.4% 60 97%
Source : ADRO

Exhibit 4: Forward PE ratio band

25

20

15 +1 std dev 15.1x

+0.5 std dev


12.8x

Avg forward PER


10 10.6x

-0.5 std dev 8.3x

-1 std dev 6.1x


5

0
Oct-12

Oct-13

Oct-14

Oct-15

Oct-16
Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17
Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Source: ADRO

Please see analyst certification and other important disclosures at the back of this report 3
EQUITY RESEARCH
ADRO - Results Update - 01 November 2017
CIPTADANA SEKURITAS ASIA

Exhibit 5 - Income Statement


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Revenue 2,684 2,524 3,602 3,971 4,332
COGS -2,141 -1,839 -2,659 -2,751 -3,053
Gross profit 543 685 943 1,220 1,279
Oper. expenses -211 -98 -35 -48 -58
Oper. profit 332 588 908 1,172 1,221
EBITDA 639 966 1,349 1,649 1,710
Interest income 12 9 41 76 94
Interest expense -61 -50 -69 -75 -71
Other income (exp.) -3 0 0 0 0
Pre-tax profit 280 547 880 1,172 1,243
Income tax -129 -206 -370 -492 -522
Minority interest 1 -6 -3 -3 -4
Net profit 152 335 508 676 717

Exhibit 6 - Balance Sheet


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 698 1,077 1,996 2,461 2,980
Acct, receivables 196 301 430 474 517
Inventory 73 73 118 130 142
Other curr, asset 121 142 409 539 572
Total current asset 1,087 1,593 2,954 3,604 4,211
Fixed assets - net 3,494 3,981 3,798 3,592 3,519
Other non-curr.asset 1,025 902 939 947 955
Total asset 5,933 6,522 7,738 8,189 8,731

ST debt + curr. maturity 123 154 275 249 199


Acct, payable 196 208 355 367 407
Advances received 0 0 0 0 0
Other curr. liab 125 283 220 251 264
Long term debt 1,429 1,296 1,905 1,803 1,813
Other non-curr, liab, 707 796 784 787 791
Total liabilities 2,580 2,736 3,538 3,458 3,474
Shareholder equity 2,866 3,146 3,557 4,086 4,608
Minority interest 487 639 642 645 649
Total liab + SHE 5,933 6,522 7,738 8,189 8,731

Exhibit 7 - Per Share Data


Year to 31 Dec(US$Cents) 2015A 2016A 2017F 2018F 2019F
EPS 0.5 1.0 1.6 2.1 2.2
BVPS 0.1 0.1 0.1 0.1 0.1
DPS 0.2 0.4 0.3 0.5 0.6
FCF per share 0.0 0.0 0.0 0.0 0.0

Source : ADRO, Ciptadana Estimates

Please see analyst certification and other important disclosures at the back of this report 4
EQUITY RESEARCH
ADRO - Results Update - 01 November 2017
CIPTADANA SEKURITAS ASIA

Exhibit 8 - Cash Flow


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Net income 152 335 508 676 717
Depreciation 307 379 441 478 489
Chg in working cap. -45 26 -358 -142 -35
Other 10 340 -47 -1 0
CF-Oper activities 424 1,080 544 1,011 1,172

Capital expenditure -111 -865 -258 -271 -416


Others 77 320 0 0 0
CF-Investing activities -34 -546 -258 -271 -416

Net change in debt -329 -118 730 -128 -40


Net change in equity 0 0 0 0 0
Dividend payment -52 -119 -97 -147 -196
Other financing 22 82 0 0 0
CF-Financing activities -358 -154 633 -276 -236

Net cash flow 32 380 919 465 519


Cash - begin of the year 665 698 1,077 1,996 2,461
Cash - end of the year 697 1,077 1,996 2,461 2,980

Exhibit 9 - Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth
Revenue (%) -19.3 -6.0 42.7 10.3 9.1
Operating profit (%) -32.2 77.1 54.6 29.0 4.2
Net profit (%) -14.3 119.5 51.8 33.2 6.1
Profitability Ratios
Gross margin (%) 20.2 27.1 26.2 30.7 29.5
Operating margin (%) 12.4 23.3 25.2 29.5 28.2
EBITDA margin (%) 23.8 38.3 37.5 41.5 39.5
Net margin (%) 5.7 13.3 14.1 17.0 16.6
ROA (%) 2.6 5.1 6.6 8.3 8.2
ROE (%) 5.3 10.6 14.3 16.6 15.6
Liquidity Ratios
Current ratio (x) 2.4 2.5 3.5 4.2 4.8
Quick ratio (x) 2.3 2.4 3.3 4.0 4.7

Cash conversion cycle (days) 7.9 21.2 24.7 25.6 26.1

Activity Ratio
Inventory turnover (days) 12.4 14.6 16.2 17.3 17.0
Receivable turnover (days) 32.7 35.9 37.0 41.5 41.7
Payable turnover (days) 37.2 29.2 28.5 33.2 32.6
Solvency Ratio
Interest cover (x) 10.5 19.3 19.6 22.0 24.0
Debt to equity ratio (x) 0.5 0.5 0.6 0.5 0.4
Net debt to equity (x) 0.3 0.1 0.1 Net Cash Net Cash

Source : ADRO, Ciptadana Estimates

Please see analyst certification and other important disclosures at the back of this report 5
EQUITY RESEARCH
ADRO - Results Update - 01 November 2017
CIPTADANA SEKURITAS ASIA

EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYST


Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa
Strategy, Automotive, Heavy Equipment, Banking Property, Plantations
Construction, Shipping T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799
T +62 21 2557 4800 ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com
E budimanarief@ciptadana.com

ANALYST ANALYST ANALYST


Kurniawan Sudjatmiko Nichelle Ongko Niko Margaronis
Coal, Metal Mining, Oil & Gas and Services Media, Retail, Others Telecommunication, Tower, Healthcare
T +62 21 2557 4800 ext 739 T +62 21 2557 4800 ext 740 T +62 21 2557 4800 ext 734
E sudjatmikokurniawan@ciptadana.com E ongkonichelle@ciptadana.com E margaronisniko@ciptadana.com

JUNIOR ECONOMIST ANALYST TECHNICAL ANALYST


Imanuel Reinaldo Fahressi Fahalmesta Trevor Gasman
T +62 21 2557 4800 ext 820 Cement, Toll Road, Poultry T +62 21 2557 4800 ext 934
E reinaldoimanuel@ciptadana.com T +62 21 2557 4800 ext 735 E gasmantrevor@ciptadana.com
E fahalmestafahressi@ciptadana.com

RESEARCH ASSISTANT
Sumarni
T +62 21 2557 4800 ext 920
E sumarni@ciptadana.com

EQUITY SALES

Co HEAD OF INSTITUTIONAL SALES Co HEAD OF INSTITUTIONAL SALES


Dadang Mulyana The Fei Ming
Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2
Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59
Jakarta - 12190 Jakarta - 12190
T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807
F +62 21 2557 4900 F +62 21 2557 4900
E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com

SURABAYA
BRANCH OFFICES

JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA


Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya
Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6
Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman 101-103
Jakarta - 10730 Jakarta - 11610 Surabaya - 60271
T +62 21 600 2850 T +62 21 5830 3450 T +62 31 534 3938
F +62 21 612 1049 F +62 21 5830 3449 F +62 31 534 3886

SEMARANG
Gedung Menara Suara Merdeka
6th Floor Unit 02
Jl. Pandanaran No.30
Semarang - 50134
T +62 24 7692 8777
F +62 24 7692 8778

Please see analyst certification and other important disclosures at the back of this report 6
EQUITY RESEARCH
ADRO - Results Update - 01 November 2017
CIPTADANA SEKURITAS ASIA

Analyst Certification

Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about the
companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not
and will not be influenced by any part or all of his or her compensation.

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This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into any
transaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine,
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The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate,
current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of the
document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and
there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PT
CIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR
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RELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF.

Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities
mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions
contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or
warranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any other
member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the
information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no
assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document
is subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed.

Please see analyst certification and other important disclosures at the back of this report 7