Company Update

ADRO

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 Author(s): Erindra Krisnawan     ;   Reggie Parengkuan 

1. Management indicated strong 4Q22 sales volume due to improving weather condition; we estimate FY22 to be in-line with our estimates.
2. We adjusted FY23/24F earnings by -2/3% to reflect higher interest costs.
3. Maintain Buy rating at a lower SOTP -based of Rp4,640 to reflect higher capex.

Expect a strong 4Q22 top line; in-line FY22

ADRO

's thermal and coking coal sales volume improved in 3Q22 to 15.8/1Mt (+9/13% qoq, +27/243% yoy) driven by stronger production and improving logistics. Our check with management indicated that this shall continue in 4Q22 on the back of improving weather condition and expect FY22 sales volume target to slightly exceed its guidance (56-60Mt). We estimate that this shall translate to 4Q22 thermal/ coking coal sales volume of +2%/flat qoq which shall bring FY22 total sales volume to c.61Mt (at 101% of our FY22 forecast). Combined with higher ASPs (ICI4 average of US$92/t in 4Q22 vs. US$81/t in 3Q22), we estimate that this shall translate to FY22 US$8.4bn revenue (at 100/108% of ours/consensus estimates).
Factoring in higher capex from growth projects
Management indicated capex for organic business growth of US$600mn mainly for heavy equipment procurement (for Balangan, MIP, and

ADMR

production expansion). Meanwhile, growth capex is indicated at US$2.1bn for power plant (US$1bn) and

ADMR

's smelter and jetty (US$1.1bn). We raised our FY23F capex assumption to US$2.8bn (from US$1.9bn previously) to mainly reflect growth capex, and assumed 70% debt financing.
We lowered FY23F estimates on higher interest
We maintained our FY22F earnings but revised down FY23/24F earnings by 2/3% to reflect the following: 1) Higher FY23/24F production volume to 63Mt from 61Mt previously to reflect improving weather outlook. 2) Higher capex to US$2.8bn, and additional debt financing (US$1.5bn).
Maintain Buy at a lower SOTP -based TP of Rp4,640
We cut our SOTP -based TP to Rp4,640 from Rp5,450 on our lower earnings forecast and higher capex and debt. We maintain our Buy rating as

ADRO

currently traded at 2.2x EV/EBITDA (40% discount to 10yr average). We expect valuation from

ADRO

's growth projects (i.e., aluminium smelter, Kaltara industrial estate) to cushion downside from ST coal price correction. Key risks are weaker than expected coal price and project delays.

Sumber : IPS