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Bukit Asam (PTBA)

On this day, July 25, 2014, several public companies has released their financial statements for the period of first half of 2014, either through the website of IDX or newspaper. Unfortunately most of them recorded a disappointing performance, if viewed from their negative growth of net income. However there is one company that shows good performance with 30% of net profit growth: PT Bukit Asam (PTBA). This coal company may represent the overall performance of coal mining sector which was begun to rise in 2014, after slowing down in the last two years. Prospects?

PTBA can be said to be the oldest coal mining company in Indonesia. The history of the company began in 1876 (138 years ago) when the Dutch East Indies government open a coal mine, perhaps the first in Indonesia, in Ombilin, West Sumatra. In 1919 the Dutch East Indies government open another coal mine in Tanjung Enim, South Sumatra. Decades later, including after Republic of Indonesia's independence, the mining operations were conducted without a corporation. But finally in 1981, PTBA officially established as a government owned (SOE) limited liability company in the field of coal mining. In 1990, another SOE of coal mining, namely PU Tambang Batubara, merged with PTBA, so PTBA became the only state-owned enterpreise in the field of coal, until today.

PTBA went public in 2002, and since then the company has continued to grow until they has the following businesses:

  1. Four location of coal mines, ie in Peranap, Ombilin, Tanjung Enim (all in Sumatra), and Samarinda (East Kalimantan). The total combined coal reserves of the mines are nearly 2 billion tons (and still can be increased along with the work of exploration), that makes PTBA as the second largest coal mining company in Indonesia in terms of the volume of coal reserves, after Bumi Resources (BUMI). The majority of the coal reserves are concentrated in Tanjung Enim.
  2. Coal Trading
  3. Power plants, which are located in Tanjung Enim
  4. Logistic facilities, in this case the railway network which connects Tanjung Enim coal mine site to the port in Lampung and Palembang, and
  5. Coal bed methane facilities. The latter arguably, if in Indonesia, only companies that have.
PTBA is one of the coal companies with the healthiest financial position in the Stock Exchange, where the company has almost no debt except for accounts payable, and its equity also continues to grow from year to year, although the company is generous in paying dividends, which is about 50 - 60% of its annual net profit. We could say that the company is benefited from the fact that since its inception, it has been occupied the most ‘fat’ coal mine in Sumatra (or even in the world), namely Tanjung Enim, so the company only need cash for work of exploration only. This is in contrast to many private coal companies who have to pay expensive, or applying loan to banks, if they want to acquire a good 'spot' of coal mine. When PTBA added its mining portfolio by acquiring coal mines in Peranap and Samarinda (Ombilin coal mine also have been acquired since the inception of the enterprise), it was because the company had a surplus from operating results of Tanjung Enim. Actually, just by holding Tanjung Enim only, PTBA is already one of the largest coal company in Indonesia, or even the world.

Because of that, the majority of the development works undertaken by the company during these times is focused in Tanjung Enim. PTBA is one of the few coal company in Indonesia which has railway network of their own, and also have the facility of coal bed methane (and also power plants, but it is not only PTBA that has power plants). Sometimes I think that the company should be able to take advantage of its position as the owner of one of the largest coal mines to do more, let say, become one of the controlling coal prices in the international market so that the performance of PTBA is no longer dependent on fluctuations in the price of coal.

However, the management is not that great, where they would rather spend the net profit to pay dividends to shareholders rather than using it to build specific business development projects (PTBA continue to build new power plants and increase the capacity of its rail network, but no more than that). However, when compared with some other giant coal companies in the country, PTBA is very worth for investment because the company is debt free and play in the 'wetlands', namely Tanjung Enim earlier. If the price of coal later return to US$ 100 per ton, then the company should make a super financial performance.

Bit of information, even though the company is the owner of one of the largest coal reserves in the world, but so far the volume of coal production is only about 12 million tons per annum, much lower than Adaro Energy (ADRO) by 53 million tons, or Bumi Resources (BUMI) by 80 million tons. PTBA actually expects to be able to produce up to 50 million tons of coal per annum from a few years ago, but until now it has not been realized (or only postponed? Because the prices of coal were so low between 2012 and 2013). If you look at the fact that PTBA is a coal company with the best profit margins in the Indonesia Stock Exchange (net profit margin on revenues reached 17%, while the highest record of other coal companies was only 10 - 11%), coupled with the possibility that the volume of coal production could 'jump' at any time when coal prices later recovered, then of course.. what more can I say? The company is very attractive for investment.

Then what about valuation of the stock?

PTBA is one of the stocks with best fundamentals in the Indonesia stock exchange, and that’s why its valuation is never really low, but almost always at a premium. In 2011 when the coal industry reached its peak performance, PBV of PTBA had reached more than 7.0 times. At the current share price, ie Rp11,450 per share, the PBV is 3.5 times, with 10.8 times of PER (as a mature and well-established company, valuation of PTBA also can be seen from its PER). Frankly, I still feel a little hesitant in giving an opinion to whether the PBV of 3.5 times is still worth a buy or not, because the number is, of course, can not be said to be low, but in the past the PBV of PTBA was almost always maintained at the level of 4 - 4.5 times. And with its recent financial performance that is arguably the most prominent even among the coal companie, then PTBA is likely the only option for investors who like stocks of coal. If you've been holding the since the beginning, then it is advisable to hold.

If there is something that might drag PTBA down is if the Jakarta Composite Index (JCI) down. As already mentioned above, the performance of the companies in the second quarter of 2014 was not so good, so the position of JCI at the moment is less supported by fundamental factors, but only because foreigners continued to buy after Jokowi win the presidential election. However, if later the index is actually down, it is also possible that PTBA will drop to Rp9,500 – 10,000 per share, which is ideal to buy to then leave it alone until the end of the year. Well, we'll see how it goes.

PT Bukit Asam (Persero), Tbk.
Rating of Performance in First Half 2014: AAA
Rating of Stock Price at 11,450: A

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