In-Depth Analysis of Indo Tambangraya Megah by UOB Kay Hian

Date: November 19, 2024 | Broker: UOB Kay Hian

Introduction

In the latest company update, UOB Kay Hian offers a comprehensive analysis of Indo Tambangraya Megah (ITMG), a high-caliber coal producer. The report delves into the financial performance, market position, and future projections of ITMG, providing investors with critical insights into the company’s operations and the broader coal market.

Company Overview

Indo Tambangraya Megah is a prominent player in the energy sector, specifically in the coal industry. As a subsidiary of Thailand’s Banpu Group, ITMG boasts coal reserves of 335 million tonnes and an annual production capacity of 20-23 million tonnes. The company’s strategic positioning within the high CV coal market underscores its importance in the energy sector.

Stock Performance and Major Shareholders

ITMG’s stock is listed under the Bloomberg ticker ITMG IJ, with a market capitalization of Rp30,338.5 billion or US\$1,911.2 million. Major shareholders include Banpu Minerals, holding a significant 65.1% stake. The company’s stock price has experienced fluctuations, reaching a 52-week high of Rp28,775 and a low of Rp23,575. The current share price is Rp26,850, with a target price set at Rp25,100, indicating a potential downside of 6.5%.

Financial Projections and Market Outlook

ITMG’s financial outlook reveals a projected decline in net profit by 12% year-over-year in 2025, primarily due to anticipated lower coal prices. Despite this, the sales volume is expected to grow by 5.5% to 24.9 million tonnes in 2025. The NPR mine, slated to commence production in 2025, presents a potential upside, although it remains unaccounted for in the current forecasts.

Key Financial Metrics and Performance

The company’s financial performance is marked by robust EBITDA and net profit figures from 2022 through 2026. In 2023, ITMG reported a net turnover of US\$2,374 million, with an EBITDA of US\$649 million. However, a gradual decline in EBITDA and net profit is anticipated over the next few years.

• Net Turnover: US\$2,374 million in 2023, projected to decline to US\$2,230 million by 2026.
• EBITDA: US\$649 million in 2023, projected to decrease to US\$399 million by 2026.
• Net Profit: US\$500 million in 2023, projected to fall to US\$287 million by 2026.

Market and Industry Dynamics

Global thermal coal market projections by Wood Mackenzie indicate a slight deficit of 3 million tonnes in 2025. Key exporters like Indonesia and Australia are expected to exhibit mixed trends, with Indonesia’s exports slightly declining and Australia’s increasing. Notably, coal prices, particularly Newcastle coal prices, are expected to drop by 4.4% year-over-year to US\$129 per tonne in 2025.

Operational Highlights and Challenges

In 3Q24, ITMG posted a significant increase in net profit by 45.6% year-over-year, attributed to higher production volumes and favorable forex gains. The company’s revenue for the quarter stood at US\$607.6 million, driven by a 16.7% increase in sales volume, underscoring its operational efficiency amidst market challenges.

Strategic Recommendations

UOB Kay Hian maintains a ‘SELL’ recommendation for ITMG, with a revised target price of Rp25,100. The analysis suggests that ITMG’s stock could face downward pressure due to potentially softer coal prices, anticipated declines in EBITDA and net profit after tax (NPAT), and lower dividend yields projected for 2024-25.

Conclusion

Indo Tambangraya Megah stands as a significant entity within the coal industry, navigating through market dynamics and operational challenges. While the company shows robust operational capabilities, the anticipated market conditions and financial projections suggest cautious optimism. Investors and stakeholders are advised to consider these insights when evaluating ITMG’s potential in their portfolios.