Above; maintain Outperform. FY10 net and core profits of Rp348bn and Rp389bn
were well above consensus and our forecasts (at 161% and 171% of our forecasts
respectively), driven by stronger-than-expected sales and lower-than-expected
costs. While Borneo’s operating variables (e.g. stripping ratio, unit costs) have yet to
stabilise due to its ongoing mine expansion, the 2010 strength nonetheless cements
our confidence in its ability to deliver. We upgrade our FY11-12 earnings estimates
by 9-12%, taking into consideration its lower 2010 cost base, while introducing 2013
estimates. We also raise our price target to Rp2,250 from Rp2,050 following our
earnings upgrade, still based on DCF (WACC 12.25%). At 11.7x CY11 P/E, Borneo
is attractive vs. its coal peers (13.2x average). Stock catalysts are expected from
strong 1Q11 volume and positive 2Q11 contract settlement prices.
• Production cost was the biggest surprise, coming in 14% below expectations.
2010 production cost was US$70/tonne vs. our US$76 with hauling and mining
costs being the key differences. Given company’s indication of stripping ratio of
16.5x in 2010, the lower-than-expected cost implied lower unit cost base. Stronger
revenue was largely aided by higher-than-expected sales and production volumes
of 1.65Mt and 1.95Mt (+122% yoy) respectively, 8% above the company’s target of
1.8Mt and our forecast.
• Increased confidence. We raise our earnings forecasts to incorporate 2010’s lower
cost base as well as higher oil-price assumptions (US$110/bbl for 2011-12). We
now believe production cash costs would average US$76-79/tonne in 2011-12. We
believe there is room for further cost improvements for items such as logistics and
hauling as we expect the company to complete more infrastructure in the mid-term.
We keep our sales forecasts unchanged but our 2011-12 coking coal-price
assumptions of US$240-230/tonne appear conservative despite a possible nearterm
demand slowdown from Japan.
analysis by: CIMB
were well above consensus and our forecasts (at 161% and 171% of our forecasts
respectively), driven by stronger-than-expected sales and lower-than-expected
costs. While Borneo’s operating variables (e.g. stripping ratio, unit costs) have yet to
stabilise due to its ongoing mine expansion, the 2010 strength nonetheless cements
our confidence in its ability to deliver. We upgrade our FY11-12 earnings estimates
by 9-12%, taking into consideration its lower 2010 cost base, while introducing 2013
estimates. We also raise our price target to Rp2,250 from Rp2,050 following our
earnings upgrade, still based on DCF (WACC 12.25%). At 11.7x CY11 P/E, Borneo
is attractive vs. its coal peers (13.2x average). Stock catalysts are expected from
strong 1Q11 volume and positive 2Q11 contract settlement prices.
• Production cost was the biggest surprise, coming in 14% below expectations.
2010 production cost was US$70/tonne vs. our US$76 with hauling and mining
costs being the key differences. Given company’s indication of stripping ratio of
16.5x in 2010, the lower-than-expected cost implied lower unit cost base. Stronger
revenue was largely aided by higher-than-expected sales and production volumes
of 1.65Mt and 1.95Mt (+122% yoy) respectively, 8% above the company’s target of
1.8Mt and our forecast.
• Increased confidence. We raise our earnings forecasts to incorporate 2010’s lower
cost base as well as higher oil-price assumptions (US$110/bbl for 2011-12). We
now believe production cash costs would average US$76-79/tonne in 2011-12. We
believe there is room for further cost improvements for items such as logistics and
hauling as we expect the company to complete more infrastructure in the mid-term.
We keep our sales forecasts unchanged but our 2011-12 coking coal-price
assumptions of US$240-230/tonne appear conservative despite a possible nearterm
demand slowdown from Japan.
