Adaro Energy (ADRO IJ)

2Q24E preview: strong sales volume to offset possible slight ASP drop

 

  • ADRO booked a healthy 2Q24 sales volume growth (+12% qoq/ +9% yoy) despite qoq production drop.
  • We deem 1H24 sales volume as inline amid higher weather uncertainty in 2H24 and estimate 1H24 EBITDA of US$1.1-1.2bn (54-55% of FY24F).
  • We reiterate our Buy rating on improving earnings growth amid our view of a favourable coal S-D outlook. 

 

Inline 2Q24 sales vol, despite indication of challenges in 2Q24 production

ADRO reported a healthy 2Q24 sales volume growth to 18.5Mt (+12% qoq/ +9% yoy), driving 1H24 sales volume to 34.9Mt (+7% yoy). 1H24 sales volume reflected a combination of growth in both thermal coal (+5% yoy to 32.3Mt) and coking coal (+43% yoy to 2.6Mt). 2Q24’s positive qoq sales growth came on the back of 2Q24 production, which slowed by -2% qoq/ flat yoy to 17.7Mt, indicating a possible weather disruption impacting some of ADRO’s mines (mainly Adaro Indonesia -6% qoq). In view of the weather uncertainties in 2H24 amid persisting La Nina watch, we deem 1H24 sales achievement (52% of our FY24) as inline.

 

1H24 preview: expect slight ASP drop to be offset by 2Q24 sales vol. growth

We estimate ADRO to book operational EBITDA in the range of US$540-570mn in 2Q24E, translating to 1H24E operational EBITDA of US$1.1-1.2bn (54-55% of our FY24). Our calculation is based on the actual 2Q24 sales volume, with an estimated slight 8-10% qoq drop in 2Q24 ASP (based on the average 2Q24 thermal and coking coal prices), combined with the estimated slight increase in cost due to the higher stripping ratio in 2Q24 of 4.0x (1Q24: 3.7x and vs. our FY24F of 4.5x).

 

China inventory drop implies improving seasonal demand

Prices for Newcastle and Indonesian coal (ICI) have shown little change as of end of Jul24 (ICI1, ICI2, and ICI3 saw slight increases of 1.4/0.2/0.3% wow). On a more positive note, coal inventories at Chinese ports have continued to decrease from their peak (though remain higher than the average levels seen over the past five years), implying improvement in seasonal demand.

 

Reiterate Buy rating at an unchanged TP of Rp3,770

We reiterate our Buy rating with an unchanged DCF-based TP of Rp3,770 on the improving earnings growth outlook. ADRO remains our preferred pick in the sector, owing to better ESG score for investors. Key risks are: 1) Production miss. 2) Project delays and higher capex.

 

… Read More 20240808 ADRO