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Good morning,
Coal
Mining - Welcoming New Members Into MSCI Small Cap Index
Delta Dunia Makmur
and Harum Energy would become new members of Indonesia’s MSCI Small Cap Index
effective the close of 31 May 2017. The inclusion should be positive for the
share price performances of Delta Dunia Makmur and Harum Energy, in our view.
Recent pullbacks in the share prices of Delta Dunia Makmur and Harum Energy
have created opportunities to accumulate the counters. We believe coal price
(Newcastle, CV 6,300kcal/kg) should trade between USD64-78/tonne, and that
China, as the biggest consumer and producer of coal in the world, has an
interest in maintaining the coal price at a certain level, which would
generate profit for its coal miners.
¨ Delta
Dunia Makmur and Harum Energy among 10 new additions into Indonesia’s MSCI
Small Cap Index.
In the semi-annual MSCI Index review, there were 10 new additions of
Indonesian counters (Figure 1) and five deletions of Indonesian counters
(Figure 2), which would be effective as of the close of 31 May 2017. There
were three coal-related counters among the new additions, ie Delta Dunia
Makmur, Harum Energy and Bumi Resources. Trading liquidity of Delta Dunia
Makmur and Harum Energy have improved, with average daily value trade for
Delta Dunia Makmur over the last three months at USD4.5m (vs USD3.6m over the
last six months), whilst the average daily value trade for Harum Energy over
the last three months was at USD1.8m (vs USD1.4m over the last six months).
¨ We
like Harum Energy.
Our DCF-derived TP of IDR3,000 for Harum Energy implies 2017F and 2018F P/Es
of 11.7x and 9.8x respectively. We believe a series of strong quarterly
earnings and sizable consensus earnings upgrade ahead should boost its share
price. Harum Energy booked strong 1Q17 earnings of USD12.4m (+850% YoY, +390%
QoQ). It indicated that 2Q17F coal production and overburden removal should
be relatively unchanged from 1Q17 levels. Therefore, the combination of
higher ASP, stronger sales volume and manageable production costs in 2Q17F
(vs 2Q16) should result in Harum Energy booking another strong set of
earnings in 2Q17F, in our view – this has not been factored in by consensus.
¨ Suggest
switching from United Tractors to Delta Dunia Makmur. We think there is
limited upside potential for United Tractors’ (UNTR IJ, NEUTRAL, TP:
IDR26,300) share price. We argue that most of the good news have already been
priced in, and there is limited positive earnings surprise ahead. The stock
is also trading at FY17F P/E of 13x, which is higher than the sector average.
Furthermore, since 2006, United Tractors' P/E multiple has oscillated around
a mean of 14x, which suggests limited upside from current levels. Therefore,
we suggest investors switch from United Tractors to Delta Dunia Makmur
considering the latter’s:
i. Sizable forecast earnings growth;
ii. Undemanding valuations – it is trading at FY17F P/E of
5.2x and EV/EBITDA of 3.3x. By comparison, its closest peer, United Tractors
is trading at FY17F P/E of 13x and EV/EBITDA of 6.2x.
iii. Superior operational and financial performance, where
volume growth, EBITDA margin and ROAE beat United Tractors’. (Hariyanto Wijaya, CFA, CPA)
Link
to report: Welcoming New Members Into MSCI Small Cap Index
Link
to daily report: Indonesia Morning Cuppa 170517
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Media Highlights:
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Corporate
Wika Beton has booked IDR1.8trn new
contracts up to April 2017
Tempuran Mas receives IDR175bn loan
facility
PP Properti targets 400 hectares land banks
Terregra Energy plans to develop four
mini-hydro projects
Tax authority now has access to personal
accounts
Jokowi scrambles to ease sectarian tension
April 2017 car sales grows by 5.6% YoY
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Our
Recent Publication:
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Economics Update: April Exports and
Imports Moderate
Link to report: April
Exports And Imports Moderate
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Results Review: Tower Bersama
Infrastructure – No Suprises
Link to report: Tower
Bersama Infrastructure : No Surprises
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Economics Update: CAD Starts To Widen In
1Q17, BOP Surplus Sustains
Link to report: CAD
Starts To Widen In 1Q17, BOP Surplus Sustains
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Sector Update: Coal Mining – Recent
Pullback Creates Opportunity To Accumulate
Link to report: Recent
Pullback Creates Opportunity To Accumulate
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Sector Update: Engineering &
Construction – Key
Takeaways From Marketing In Singapore
Link to report: Key
Takeaways From Marketing In Singapore
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Sector Update: Plantation – Stock-To-Usage
Ratio To Normalise Soon
Link to report: Plantation – Stock-To-Usage Ratio
To Normalise Soon
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Corporate News Flash: Alam Sutera – A
Decent Take-Up Rate For Chiara
Link to report: Alam
Sutera : A Decent Take-Up Rate At Chiara
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Company Update: Surya Semesta
Internusa – Positive Outlook Unchanged
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Economics Update: Economic Growth Sustained
In 1Q17
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Company Update: Bank Mandiri – Spring Has
Finally Sprung
Link to report: Bank
Mandiri : Spring Has Finally Sprung
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Company Update: Waskita Karya – Stellar
Performance
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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