Indonesian Coal Mining Companies in Focus: Harum Energy
The sharply rallying coal price in the second half of 2016 and its strong cash position (a sign of financial strength and liquidity) is the right recipe for listed Indonesian coal miner Harum Energy to post strong corporate earnings this year. In fact, Indonesian securities company Trimegah Securities believes that Harum Energy is the coal miner that will benefit the most of all listed coal miners on the Indonesia Stock Exchange (IDX) because 95 percent of its coal sales is sold on the spot market.
At the start of December 2016 global coal prices were at a five-year high supported by rising coal demand from China after the world's second-largest economy decided to curtail national coal output. Given that Harum Energy sells nearly all of its coal on the spot market it can take full advantage of rallying coal prices. Trimegah Securities says that for every 1 percent coal price growth, Harum Energy's earnings per share rise 3.4 percent.
Thanks to the rising coal price, Harum Energy posted USD $49 million in sales in the third quarter of 2016, while net profit jumped to USD $6 million (up around 100 percent from net profit in the preceding quarter). It is expected that Harum Energy will boost coal production in the foreseeable future to seek more profit amid high coal prices.
Meanwhile, Trimegah Securities also says that Harum Energy benefits when crude oil prices are low. Based on internal research the securities company estimates that for each 1 percent drop in the crude oil price, Harum Energy's earnings per share rise 0.6 percent. However, since the OPEC agreed to a production cut during the meeting on 30 November 2016, the crude oil price is moving upwards.
Other strengths of this coal company are the healthy amount of internal cash reserves (estimated at USD $196 million) and the fact that the company does not have any debt.
Therefore, Trimegah Securities advises investors to invest in Harum Energy with the target share price at IDR 2,900 a piece. Although shares of Harum Energy fell 2.55 percent to IDR 2,290 a piece on Thursday (08/12), the miner's shares have risen a whopping 239.26 percent so far this year.
Stock Quote Harum Energy - HRUM:
Ray Antonio Gunara, President Director of Harum Energy, said the miner targets to produce about 3 million tons of coal in 2016, down from production realization last year (3.6 million tons). However, given the higher coal price the company's net profit and profit margin will be much better in 2016. Moreover, the company will cut production costs by reducing the stripping ratio and fuel usage.
Almost 100 percent of Harum Energy's coal is exported abroad, mostly to South Korea, Taiwan and Malaysia. According to Gunara these three countries consume nearly all of the miner's coal and therefore Harum Energy is not looking for new markets. Harum Energy's sales on the domestic market are insignificant as the company produces coal in the medium to high calorie range. There is only one domestic buyer: cement producer Indocement Tunggal Prakarsa.
Future Projection Harum Energy's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Revenue | 478 | 249 | 188 | 299 | 375 |
| EBITDA | 31 | 10 | 34 | 58 | 68 |
| Net Profit (loss) |
0 | (19) | 18 | 34 | 40 |
| P/E Ratio (x) | 24.9 | 13.3 | 11.2 | ||
| EV/EBITDA (x) | 6.6 | 19.8 | 5.9 | 3.5 | 3.0 |
in million USD, unless otherwise stated
Source: Trimegah Securities (08/12/2016)
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