Indo Tambangraya Megah (ITMG IJ)

Deploying Cost Efficiency Plan Amid Weak Coal Price

 

  • ITMG’s weaker 1Q25 result was in line with seasonality, though the ASP dropped -13% qoq due to a lower CV mix from GPK.
  • ITMG have started to lower its expenses through several cost efficiency measures amid weak export demand and lower coal index prices.
  • We reiterate our Buy rating with a downgraded TP of Rp26,500. Key risks to our call include lower coal price, sales volume, and higher stripping ratio.

 

Weaker result due to lower ASP

ITMG recorded 1Q25 revenue of US$483mn, -25.5% qoq, -1.4% yoy, reaching 22%/22% of ours/cons estimate. The result was below estimates due to weaker q-q sales of 5.9Mt, -14.5% qoq, and an ASP of US$81/Mt, -13.1% qoq. Aside from a weaker coal index price, a notable decrease in ASP was caused by the higher contribution from GPK, which has a lower ASP due to its lower CV mine profile. Despite cost savings in cogs and opex, ITMG still recorded a lower EBITDA of US$90mn, -47.2% qoq, resulting in lower net profits of US$65mn, -35.7% qoq and +5.5% yoy, reaching 26%/22% of our/cons estimate.

 

Cost efficiency will be the main focus

ITMG will be prioritizing cost efficiencies under a weak coal price environment by reducing overhead expenses and optimizing mining operations. Furthermore, it plans to continue growing its coal trading arm, with aims of 5.7Mt in sales in FY25, +29.5% yoy, in hopes of keeping production growing YoY. ITMG recorded its lowest export sales mix since 4Q21 at 68% due to weaker interest from China and Japan, though it hopes that demand could recover in 2Q from India as heatwaves usually occur.

 

Changes in our forecasts

Based on the company’s latest performance, we slightly revised down its blended ASP from US$80.7/Mt to US$79/Mt, due to higher exposure towards lower CV coal and declining coal index prices. Thus, we slightly decreased our FY25-27F revenue estimates by -4.6%/-6.8%/-1.5% to US$2.13bn/2.09bn/2.09bn, and net profit estimates by -3.3%/-0.2%/+1.3% to US$243mn/221mn/136mn.

 

Transfer of coverage; Maintain Buy rating with a TP of Rp26,500

We reiterate our Buy rating with a TP of Rp26,500 based on our DCF valuation, implying FY25F PE of 7.7x. Key risks to our call include lower coal price, lower sales volume, and a higher stripping ratio.

 

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