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Good morning,
Delta Dunia Makmur:
A Beneficiary Of The Coal Price Recovery
The
Chinese Government’s policy to cut its domestic coal production by 500m
tonnes in the next three years should benefit Indonesian coal mining
contractors. This benefit should at least come from recovering coal prices,
which will result in less discounting on mining contracting fees. Delta
Dunia, Indonesia’s second largest coal mining contractor, explains that if
the average 3-month coal price stays above USD60/tonne, its profit margins
should improve from 4Q16, due to less discounting on its mining contracting
fees. We have no rating on the stock.
¨ Less
discounting on mining contracting fees… To get a feel as to the latest
conditions for the coal mining contracting business, we met with Delta Dunia
Makmur’s (Delta Dunia) finance director and corporate secretary, Mr Errinto
Pardede. Delta Dunia is the holding company of PT Bukit Makmur Mandiri Utama
(BUMA), the second largest coal mining services contractor in Indonesia in
terms of mining contracting volume.
¨ …due
to the coal price recovery. Management explained that due to the
weakening trend in coal price (which occurred until mid-2016), their
customers received a discount on mining contracting fees of 5-10% from its
mining contracting base fees. Management also explained that if the average
coal price in the last three months is >USD60/tonne, then there will be
less discounting on its mining contracting fees. There will be no discount at
all on these fees, if the average coal price is >USD70/tonne.
¨ Profit
margins should improve from 4Q16. Due to the Chinese Government’s policy to
cut domestic coal production, coal price has recovered to above USD60/tonne
since July, and is now at USD67/tonne. If the average coal price stays above
USD60/tonne for three months, lower discounting on its mining contracting
fees will be effective from 4Q16, which should improve profit margins from
thereon.
¨ No
rating on Delta Dunia, which trades at EV/EBITDA of 3.8x. Over the last
three years, Delta Dunia traded within an EV/EBITDA range of 3-4.6x. Looking
ahead, management believes earnings should recover, at the very least, due to
reduced discounting on its mining contracting fees.
¨ United
Tractors (UNTR IJ, BUY, TP: IDR20,900) also a beneficiary of coal price
recovery.
We think PT Pamapersada Nusantara (United Tractors’ subsidiary), the biggest
coal mining services contractor in Indonesia, should also benefit from the
coal price recovery. We have a BUY on United Tractors as:
i. Coal price recovery should lead earnings
to recover from FY17 at its coal mining contracting and coal sales
businesses. In our view, this is still not yet fully reflected in consensus numbers
and share price performance (our FY17F EPS is 13.5% above consensus);
ii. Its undemanding valuations – currently
FY17F P/E of 11.2x vs its 10-year mean of 14x. (Hariyanto
Wijaya, CFA, CFP, CA, CPA, Ahmad Idham)
Link
to report: Delta Dunia Makmur : A Beneficiary Of The Coal Price Recovery
Link
to Daily report: Indonesia Morning Cuppa - 230816
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Media Highlights:
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Economics
Indonesia outstanding debt reached
USD323.8bn
Corporates
BCA to acquire two
banks
Mega Manunggal to
add two new warehouses
Semen Indonesia to
open two new plants
State-owned banks to disburse syndicated
loans worth IDR12trn
Wijaya Karya revised
profit target to IDR940bn
Krakatau Steel
finalise IDR1.4trn loan
Nirvana Development
acquired a shopping center
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
