Adaro Andalan Indonesia (AADI IJ)

Firmer ASP to Support 2H26 Outlook

• We expect 2H26 earnings to be supported by stronger coal prices, underpinned by firmer demand from key importers.
• The Kestrel sale remains on track, with estimated gross proceeds of c.US$888mn, although regulatory approvals are still pending
• Maintain Buy with an unchanged DCF-based TP of Rp12,400.

On-track for a stronger 2H26 earnings

AADI’s 2Q26 EBITDA came in stronger than we had expected, mainly as ASP remained firm at US$75.6/t (+15% qoq/ +13% yoy ) while costs were broadly stable (+1%/ +4% yoy qoq). Despite a higher DMO mix of 32% in 2Q26, a significant portion of domestic sales was still directed to industrial customers, which fetched better pricing, while a lower stripping ratio of 3.8x helped offset higher fuel prices. Looking into 2H26, we believe the recent increase in coal prices should support export ASP, while management expects to maintain a relatively high industrial-customer mix within domestic sales. Production costs, however, should increase from 2Q26 levels as AADI maintains its FY26 stripping ratio target of 4.3x.

Demand-driven price momentum despite easing Indonesia’s supply

Management views the recent coal-price increase as primarily demand-driven, with both China and India becoming more active in the seaborne market. China’s domestic supply has been affected by tighter safety inspections, while India has seen stronger import demand amid tighter inventories and weather-related disruptions to domestic supply. Management is also seeing stronger demand from other Asian buyers as customers seek to secure inventories amid elevated crude oil prices. Buyers remain concerned over dry-season disruptions at some Indonesian mines and delays in RKAB revisions, although AADI’s logistics through Kelanis remain unaffected. For 2027, customer contract discussions are still ongoing, while buyers’ earlier concerns over the planned DSI export mechanism appear to be easing.

Maintain Buy rating and TP of Rp12,400

We maintain our FY26-28F estimates and DCF-based TP of Rp12,400 amid positive coal price momentum.  On Kestrel sale, transaction completion remains targeted toward end-3Q26, with the deal still awaiting regulatory approvals, including approvals from the Chinese authorities. Management indicated that there have been no material concerns from Yancoal thus far. Based on AADI’s 47.99% stake in KCG, we estimate gross upfront proceeds of c.US$888mn, with potential upside from price-linked contingent payments over five years. Key risks are: weaker coal price, delayed 2027 volume contract.

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