EQUITY RESEARCH

ADRO - Results Update - 05 March 2019

CIPTADANA SEKURITAS ASIA

BUY Adaro Energy

FY18 results broadly in-line
TP: Rp1,750 (+24.1%)

Sector Coal FY18 earnings fell by 13.6% on one-off items, revenue in-line
Adaro Energy (ADRO) recorded USD417.7mn net income in FY18, down by 13.6% YoY,
Bloomberg Ticker ADRO IJ
missing our estimates and consensus at 80% and 93% of FY18F, respectively. FY18
Share Price Performance
revenue grew by 11.1% to USD3.6 bn driven mainly by a 5% YoY increase in ASP to
USD61.8/ton and an increase of 5% YoY of sales volume at 54.4 mn ton . However, COGS
Last price (Rp) 1,410 increased at a faster pace by 13.8% YoY owing mainly to higher fuel cost caused by a
Avg. daily T/O (Rpbn/USDmn) 98.7/7.0 surge in global oil benchmark prices. Therefore, GPM decreased by 160bps to 33.4%.
While operating expenses grew by 5.6% which further dragged down OPM by 130bps to
3m 6m 12m
28.1%. Below the operating line other expenses increased by 589.3%, this is mainly driven
Absolute (%) 8.5 -18.5 -36.5 by a number of one-off expenses such as loss on impairment of non-financial assets
Relative to JCI (%) 2.6 -29.3 -36.3 amounting to USD111,4 mn and loss in JV amounting to USD29.4mn. Excluding this, FY18
net income would have come in-line with our expectation (101% of our FY18F).
52w High/Low price (Rp) 2,380/1,215
Poor 4Q18 caused by lower coal ASP
2,500 5%
On a quarterly basis ADRO reported net profit of USD105.0 mn, down by 10.4% QoQ,
0% mainly due to an 8.5% decrease in ASP to USD 58.0/ton from USD63.4/ton in 3Q18. 4Q18
2,000 -5% revenue declined by 9.8% to USD 952.9 mn on a combination of both lower ASP and
-10%
-15% volume. Despite cost of sales was decreasing by 7.3% due to a sudden drop in global oil
1,500
-20% prices, gross profit still fell by 14.2% to USD331.6. Operating expenses increased by 15.3%
-25%
1,000 -30%
QoQ which further dragged operating profit down by 18.4% QoQ to USD275.8mn. Below the
-35% operating line, the company posted an 18.9% increase in other expenses amounting to
500 -40% USD97.4 mn (+18.9% QoQ) which mainly came from a one-off impairment from OPCC
-45%
0 -50% amounting to USD111m.
Dec-18

Feb-19
Oct-18
Sep-18

Nov-18
Aug-18
Mar-18

Jul-18
May-18
May-18
Apr-18

Jan-19
Jun-18

Flattish production guidance for 2019

Management has provided 2019 guidance which stated flattish production volume at
ADRO 1yr Rel. to JCI (RHS) around 54-56 mn tons, which at its midpoint is lower than our estimate at 55.6 mn tons
and a strip ratio af 4.6x. EBITDA guidance is set at USD1,100 mn which is 20.4% lower than
Outstanding shrs (mn) 31,986 FY18 and 5% higher than our FY19F at USD1,043 mn. Capex for FY19F guideline is
Mkt. Cap (Rpbn/USDmn) 45,100/3,187 targeted at USD550 mn, this implies a 12% YoY increase than FY18 and a slight difference
than our 2019 estimate at USD557 mn. Cash cost excluding royalty is targeted to be at
Estimated free float (%) 15.7
USD30, which is slightly below (-5%) our estimate at USD28/ton and unchanged compared
Major shareholders to FY18.
Adaro Strategic 43.9%
Retain our BUY rating and TP of Rp1,750
Thohir Garibaldi 6.2% We currently opt to maintain our earnings forecast following in-line FY18 results. We
currently maintain BUY rating on ADRO as our TP of Rp1,750 still offers 24.1% upside
potential. We believe current valuation of FY19-20F PER 6.9-5.9x is still attractive.
EPS Consensus Furthermore, we expect the recent accident at Inner Mongolia mine will result in a more
Ciptadana Cons. % Diff tight coal supply in the short term due to stricter safety measures (especially for low CV
coals) thus providing a short term positive sentiment for low CV coal prices.
2019F 1.5 1.3 16.5
2020F 1.8 1.4 25.5
2021F 1.9 1.0 94.9 Exhibit 1 : Financial Highlights
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Revenue (USDmn) 3,258 3,620 3,481 3,598 3,762
Operating profit (USDmn) 952 1,016 786 877 892
Net profit (USDmn) 483 418 484 562 623
EPS (US$Cents) 1.5 1.3 1.5 1.8 1.9
EPS growth (%) 44.4 -13.6 16.0 16.0 10.9

Thomas Radityo EV/EBITDA (x) 2.6 2.8 3.7 2.9 2.6

+62 21 2557 4800 Ext. 739 PER (x) 6.9 7.9 6.9 5.9 5.3

radityothomas@ciptadana.com PBV (x) 1.0 0.9 0.8 0.7 0.7

Dividend yield (%) 3.0 6.7 3.1 3.7 4.3
ROE (%) 13.9 11.4 12.0 12.6 12.6
http://www.ciptadana.com
Source : ADRO, Ciptadana Estimates

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 EQUITY RESEARCH
ADRO - Results Update - 05 March 2019
CIPTADANA SEKURITAS ASIA

Exhibit 2: FY18 financial result

USD mn FY18 FY17 YoY 4Q18 3Q18 QoQ 2018F 2018A/F
Revenue 3,619.8 3,258.3 11.1% 952.9 1,056.6 -9.8% 3,508.3 103%
Cost of revenue -2,409.5 -2,116.8 13.8% -621.2 -670.0 -7.3%
Gross profit 1,210.2 1,141.5 6.0% 331.6 386.6 -14.2%
Gross margin (%) 33.4% 35.0% -1.6% 34.8% 36.6% -1.8%

Operating expenses -194.0 -183.7 5.6% -55.8 -48.4 15.3%

Operating profit 1,016.2 957.9 6.1% 275.8 338.2 -18.4% 1,014.0 100%
Operating margin (%) 28.1% 29.4% -1.3% 28.9% 32.0% -3.1%

Total other inc (exp) -195.2 -28.3 589.3% -97.4 -81.9 18.9%

Pre-tax profit 821.0 929.5 -11.7% 178.4 256.3 -30.4%

Tax -343.5 -393.1 12.6% -52.6 -128.7 -59.1%

Profit Before MI 477.5 536.4 -11.0% 125.7 127.6 -1.5%

Minority Interest 59.8 53.1 12.6% 20.7 10.4 99.2%
Net profit 417.7 483.3 -13.6% 105.0 117.2 -10.4% 523.7 80%
Net margin 11.5% 14.8% -3.3% 11.0% 11.1% -0.1%
Source: ADRO, Ciptadana Estimates

Exhibit 3: FY18 operational result

FY18 FY17 YoY 4Q18 3Q18 QoQ
Coal production (mn tons) 54.0 51.8 4.3% 15.1 14.9 0.9%
Coal sales (mn tons) 54.4 51.8 5.0% 15.2 15.5 -1.7%
OB Removal (Mbcm) 273.6 238.7 14.6% 69.2 81.3 -14.9%
ASP (USD/ton) 61.8 58.7 5.3% 58.0 63.4 -8.5%
Source: ADRO

Exhibit 4: ASP vs production volume

Coal Production ASP

USD/ton mn ton
100.0 70.0
90.0
60.0
80.0
70.0 50.0
60.0 40.0
50.0 58.7 61.8
58.7 58.7
40.0 30.0
43.4
30.0 20.0
20.0
10.0
10.0
52.8 51.8 54.0 55.6 57.5
- -
2016 2017 2018 2019 F 2020 F
Source: ADRO, Ciptadana Estimates

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 EQUITY RESEARCH
ADRO - Results Update - 05 March 2019
CIPTADANA SEKURITAS ASIA

Exhibit 5 - Income Statement

Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Revenue 3,258 3,620 3,481 3,598 3,762
COGS -2,117 -2,410 -2,411 -2,437 -2,581
Gross profit 1,142 1,210 1,070 1,162 1,181
Oper. expenses -190 -194 -284 -284 -289
Oper. profit 952 1,016 786 877 892
EBITDA 1,276 1,325 1,040 1,186 1,243
Interest income 19 24 32 56 66
Interest expense -53 -78 -71 -71 -5
Other income (exp.) 12 -141 -29 -29 -29
Pre-tax profit 930 821 718 833 924
Income tax -393 -343 -179 -208 -231
Minority interest -53 -60 -54 -62 -69
Net profit 483 418 484 562 623

Exhibit 6 - Balance Sheet

Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Cash & cash equivalent 1,454 1,017 1,686 1,978 1,781
Acct, receivables 315 371 415 429 449
Inventory 85 112 114 118 155
Other curr, asset 126 100 72 81 87
Total current asset 1,981 1,600 2,288 2,605 2,472
Fixed assets - net 3,862 3,907 4,325 4,642 4,949
Other non-curr.asset 927 977 993 995 999
Total asset 6,815 7,062 8,175 8,805 8,974

ST debt + curr. maturity 237 220 192 88 0

Acct, payable 279 342 322 325 354
Advances received 0 0 0 0 0
Other curr. liab 258 255 215 372 385
Long term debt 1,156 1,214 1,962 2,030 1,691
Other non-curr, liab, 793 728 748 749 751
Total liabilities 2,723 2,758 3,438 3,564 3,181
Shareholder equity 3,470 3,651 4,031 4,472 4,955
Minority interest 623 652 706 769 838
Total liab + SHE 6,815 7,062 8,175 8,805 8,974

Exhibit 7 - Per Share Data

Year to 31 Dec(US$Cents) 2017A 2018A 2019F 2020F 2021F
EPS 1.5 1.3 1.5 1.8 1.9
BVPS 0.1 0.1 0.1 0.1 0.2
DPS 0.3 0.7 0.3 0.4 0.4
FCF per share 0.0 0.0 0.0 0.0 0.0

Source : ADRO, Ciptadana Estimates

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 EQUITY RESEARCH
ADRO - Results Update - 05 March 2019
CIPTADANA SEKURITAS ASIA

Exhibit 8 - Cash Flow

Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Net income 483 418 484 562 623
Depreciation 325 309 254 309 351
Chg in working cap. -210 154 -78 134 -21
Other -47 -97 58 62 68
CF-Oper activities 551 783 718 1,066 1,021

Capital expenditure -206 -354 -672 -626 -658

Others -39 -531 7 7 7
CF-Investing activities -244 -885 -664 -618 -651

Net change in debt -57 61 719 -35 -427

Net change in equity 0 0 0 0 0
Dividend payment -102 -223 -104 -121 -141
Other financing -17 -15 0 0 0
CF-Financing activities -176 -177 615 -156 -567

Net cash flow 130 -279 669 292 -197

Cash - begin of the year 1,077 1,207 928 1,597 1,888
Cash - end of the year 1,207 928 1,597 1,888 1,692

Exhibit 9 - Key Ratios

Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Growth
Revenue (%) 29.1 11.1 -3.8 3.4 4.6
Operating profit (%) 62.0 6.8 -22.7 11.6 1.7
Net profit (%) 44.4 -13.6 16.0 16.0 10.9
Profitability Ratios
Gross margin (%) 35.0 33.4 30.7 32.3 31.4
Operating margin (%) 29.2 28.1 22.6 24.4 23.7
EBITDA margin (%) 39.2 36.6 29.9 33.0 33.0
Net margin (%) 14.8 11.5 13.9 15.6 16.6
ROA (%) 7.1 5.9 5.9 6.4 6.9
ROE (%) 13.9 11.4 12.0 12.6 12.6
Liquidity Ratios
Current ratio (x) 2.6 2.0 3.1 3.3 3.3
Quick ratio (x) 2.5 1.8 3.0 3.2 3.1
Cash conversion cycle (days) 21.9 20.2 23.7 27.7 31.5
Activity Ratio
Inventory turnover (days) 14.7 17.0 17.3 17.7 21.9
Receivable turnover (days) 34.5 34.6 41.2 42.8 42.6
Payable turnover (days) 27.3 31.3 34.8 32.8 32.9
Solvency Ratio
Interest cover (x) 24.1 17.0 14.6 16.7 261.0
Debt to equity ratio (x) 0.4 0.4 0.5 0.5 0.3
Net debt to equity (x) Net Cash 0.1 0.1 0.0 Net Cash

Source : ADRO, Ciptadana Estimates

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 EQUITY RESEARCH
ADRO - Results Update - 05 March 2019
CIPTADANA SEKURITAS ASIA

EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYST

Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa
Strategy, Automotive, Heavy Equipment, Banking Property, Plantations
Construction, Oil & Gas T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799
T +62 21 2557 4800 ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com
E budimanarief@ciptadana.com

ECONOMIST ANALYST ANALYST

Imanuel Reinaldo Fahressi Fahalmesta Stella Amelinda
T +62 21 2557 4800 ext 820 Cement, Toll Road, Poultry Consumer, Cigarette
E reinaldoimanuel@ciptadana.com T +62 21 2557 4800 ext 735 T +62 21 2557 4800 ext 740
E fahalmestafahressi@ciptadana.com E amelindastella@ciptadana.com

ANALYST ANALYST ANALYST

Robert Sebastian Thomas Radityo Gani
Retail, Healthcare Coal, Metal Mining Telco, Tower, Media
T +62 21 2557 4800 ext 760 T +62 21 2557 4800 ext 739 T +62 21 2557 4800 ext 734
E sebastianrobert@ciptadana.com E radityothomas@ciptadana.com E gani@ciptadana.com

TECHNICAL ANALYST RESEARCH ASSISTANT

Trevor Gasman Sumarni
T +62 21 2557 4800 ext 934 T +62 21 2557 4800 ext 920
E gasmantrevor@ciptadana.com E sumarni@ciptadana.com

EQUITY SALES

Co HEAD OF INSTITUTIONAL SALES Co HEAD OF INSTITUTIONAL SALES

Dadang Mulyana The Fei Ming
Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2
Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59
Jakarta - 12190 Jakarta - 12190
T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807
F +62 21 2557 4900 F +62 21 2557 4900
E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com

SURABAYA
BRANCH OFFICES

JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA

Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya
Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6
Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman 101-103
Jakarta - 10730 Jakarta - 11610 Surabaya - 60271
T +62 21 600 2850 T +62 21 5830 3450 T +62 31 534 3938
F +62 21 612 1049 F +62 21 5830 3449 F +62 31 534 3886

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 EQUITY RESEARCH
ADRO - Results Update - 05 March 2019
CIPTADANA SEKURITAS ASIA

Analyst Certification

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companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not
and will not be influenced by any part or all of his or her compensation.

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Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities
mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions
contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or
warranty, expressed or implied, is made by PT CIPTADANA SEKURITAS ASIA or any other member of the Ciptadana Capital, including any
other member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the
information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no
assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document
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