Contents
Investment summary 3
We initiate coverage on Indonesia’s coal sector with a positive view and Buy ratings
on United Tractors, Bukit Asam and Adaro Energy; a Hold rating on Indo
Tambangraya; and a Sell on Bumi Resources.
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Indonesia – a coal powerhouse 4
We expect Indonesia’s coal output growth to be underpinned by rising domestic
demand as the electricity ratio is raised to cover 90% of the population by 2020, vs
65% now, with increasing use of coal-fired power plants.
4
Strong coal output growth to continue 4
Domestic power-sector demand to underpin growth 5
Leading companies plan to ramp up production 9
Moderately rising coal price outlook 12
New mining law creates uncertainty 13
Coal sector valuation and top picks 15
Indonesia’s coal sector, except United Tractor, has underperformed in the past 12
months but trades at a 2011F PE of 11x, similar to the market. Our DCF-based TPs
suggest United Tractors, Bukit Asam and Adaro Energy have the most upside
potential in the coal sector.
15
Coal stocks underperformed within past 12 months 15
Indonesia is a PE-driven market 16
Our DCF-based target prices are sanity-checked with PEs 18
United Tractors, Bukit Asam, Adaro Energy are our picks 18
Company profiles 20
Adaro Energy 21
TB Bukit Asam 34
Bumi Resources 48
Indo Tambangraya 60
United Tractors 71
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