Adaro Energy

Stock Quote Adaro Energy - ADRO:

Business Summary

Adaro Energy and its subsidiaries are engaged in coal mining and trade, coal infrastructure and logistics, mining contractor services, and power generation. Each operating subsidiary is positioned as an independent and integrated profit center in order for Adaro Energy to have a competitive and reliable coal production and a coal supply chain. In the future, Adaro Energy may publicly list its subsidiaries to support further growth and development.

Through subsidiary Adaro Indonesia, the company operates a concession in South Kalimantan (the principal mining location of Adaro Energy) which involves three mines: Tutupan, Wara and Paringin. Coal that is produced in these mines are mostly supplied to blue-chip power utilities in both Indonesia and worldwide. Adaro Energy also has mining assets in South Sumatra, Central and East Kalimantan.

The company, which started its commercial operations in Indonesia in 1992, is one of the top five exporters in the global seaborne thermal coal business and the largest supplier to Indonesia's domestic market. Adaro Energy produces a preferred type of sub-bituminous coal trademarked as Envirocoal. This high-quality, low-pollutant coal contains ultra-low ash, NOx and sulphur, and has a low-to-moderate heat value ranging from 4,000 kcal/kg to 5,000 kcal/kg on a gross as received basis (GAR).

As the coal mining industry has been plagued by low coal prices since the late 2000s, Adaro Energy has been increasingly focusing on power generation through the construction of coal-fired power plants. Given the company’s access to large coal reserves and Indonesia’s demand for electricity, the power generation business segment is expected to become a valuable asset to the company providing the company with healthy returns and stable cash flows, offsetting the negative impact of volatile coal prices on its corporate earnings. Amid solid economic growth Indonesia’s electricity demand is forecast to nearly triple to 17 quadrillion BTUs by 2030 (McKinsey estimate).

Adaro Energy's Operational Highlights:

	2014	2015	2016	2017
Coal Production volume (Mt)¹	56.2	51.5	52.6	51.8
Coal Sales volume (Mt)¹	57.0	53.1	54.1	51.8
Overburden Removal (Mbcm)	319.1	267.0	234.1	238.7
Actual Strip Ratio (x)	5.8	5.2	4.5	4.6

 

	2009	2010	2011	2012	2013
Coal Production volume (Mt)¹	40.6	42.2	47.7	47.2	52.3
Coal Sales volume (Mt)¹	41.4	43.8	50.8	48.6	53.5
Overburden Removal (Mbcm)	208.5	225.9	299.3	331.5	294.9
Actual Strip Ratio (x)		5.4	5.9	6.4	5.8

^{¹ million metric tons
Source: Adaro Energy, Annual Report 2017}

Adaro Energy produces coal that is less environment unfriendly due to its low content of sulfur, nitrogen and ash. This coal is globally trademarked as envirocoal. About 25 percent of its coal production is consumed on the domestic market, mainly for power generation by coal-fired plants. Major export markets of Adaro Energy's coal are India, Spain, Japan, South Korea and China.

Adaro controls (or has options on) approximately 12.8 billion tons of coal resources, including 1.1 billion tons of coal reserves. The company's medium-term annual coal production target is about 80 million tons.

In addition to its coal reserves, Adaro has various other assets to support its operations, such as the 75 kilometer-long haul road connecting the mine location to the crushing facility in Kelanis (Kalimantan) as well as a coal terminal on Pulau Laut. And - through a subsidiary - Adaro Energy possesses a full mining fleet.

Strengths & Opportunities:

• Resilient vertically integrated pit-to-power business model that creates efficient operations
• Unique product of low to medium calorific value, sub-bituminous coal with ultra-low pollutant characteristics
• Low cost producer with proven track record of production growth
• Vast coal resources and reserves
• Long-term contracted tonnage with diversified blue-chip customers
• Financial strength
• Strong domestic electricity demand supports its move into power, a natural hedge against volatile coal markets
• The Asia-Pacific region’s economic growth will boost demand for energy
• New boiler technologies enable the use of subbituminous coal as fuel
• Tighter environmental standards support Envirocoal’s ultra-low pollutant characteristics
• Scarcity of high-rank coal promotes structural changes

Weaknesses & Threats:

• Adaro´s operations are located far inland and in remote locations
• Coal mining is long-term, high-risk, slow yielding, volatile and a cyclical business
• Mine development is capital-intensive and requires specialized knowledge
• Limited product line (although the company is diversifying into power generation and will have varying products from low rank coal to coking coal through its acquisitions)
• Alternative energy sources compete as suppliers for power generation
• Regulatory uncertainty in both domestic and export markets
• Growing concern on environmental impact of carbon emissions
• Development in China, India and Mongolia allows for greater coal supply
• Global economic slowdown reduces coal demand

Adaro Energy's Financial Highlights:

	2014	2015	2016	2017
Net Revenue	3,325	2,684	2,524	3,258
Net Income	183	151	341	536
Gross Profit	719	543	685	1,141
EBITDA	888	730	893	1,315
Operating Income	490	332	588	952
Total Assets	6,414	5,959	6,522	6,814
Total Liabilities	3,154	2,606	2,736	2,723
Earnings per Share¹	0.006	0.005	0.010	0.015
Dividend per Share¹	0.00236	0.00236	0.00316

 

Continued	2009	2010	2011	2012	2013
Net Revenue	2,591	2,718	3,987	3,722	3,285
Net Income	417	247	552	383	232
Gross Profit	1,057	829	1,428	1,043	744
EBITDA	1,067	883	1,472	1,111	860
Operating Income	898	638	1,131	836	539
Total Assets	4,530	4,470	5,659	6,692	6,696
Total Liabilities	2,648	2,438	3,217	3,697	3,522
Earnings per Share¹	0,01297	0.00773	0.01721	0.01205	0.00731
Dividend per Share	29.00²	30.35²	0.00810¹	0.00336¹	0.00235¹

^{in million USD, unless otherwise stated
¹ in USD
² in IDR rupiah
Source: Adaro Energy, Annual Report 2017}

Visit our Coal Mining in Indonesia section for detailed information about Indonesia's coal mining industry.

Projection Adaro Energy's Future Corporate Earnings:

	2018	2019	2020F	2021F	2022F
Net Revenue	3,620	3,457	2,741	3,084	3,327
EBITDA	1,240	999	810	959	1,029
Net Profit	418	404	280	352	394
P/E Ratio (x)	7.0	7.2	10.4	8.3	7.4
P/B Value (x)	0.7	0.7	0.7	0.7	0.6

^{in million USD, unless otherwise stated
Source: Trimegah Sekuritas (17/06/2020)}