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Adaro Energy

Adaro Energy (ADRO) had attracted us when it noted an increase of net profit about 393.2% at Full Year 2009. Its share also went up to 2,100 - 2,200 even though previously it was corrected till level 1,790. However, it seems that now is the right moment for you, who hold ADRO, to go out. Why?

The Coal price during one month still strengthens. At closing time this week, the index of Newcastle Australian stood at USD 108.9 per ton, rose 8.7% from last week. The Index of ARA even remained at USD 88.52 per ton, went up 12.5% from last week. So, the coal sector seems still promising.

The operational report of ADRO also showed a good increase. ADRO produced 11.4 million ton coal in the first quarter of 2010, went up 26% from the same period last year. The sale of coal also mounted 31%. Some other operational indicators like overburden (the land which was dug to take existing coal under), the amount of sent coal, and the amount of sold coal, increased 20% in average.

Then why do you have to go out from ADRO now?

It is because ADRO seems not (or not yet) continue its positive trend on the monetary performance like the previous year. ADRO noted a degradation of net profit around 24.9% at the first quarter of 2010 compared to the same period last year. The sale and its operational profit also decreased about 3.9% and 15.9%. One of the main factors that caused the degradation of its net profit was the increase about 57.0% at interest expenses and finance charge. On 31st March 2010, ADRO has a quite big long-range bank debt: Rp9.2 trillion, where the Rp2.1 trillion will mature this year.

If we see from its share price about 2,200, it can be classified as a quite expensive share. The share of ADRO has gone up 27.2% since early 2010. During this year, the highest price of ADRO is 2,250 (so, its price now is close to its peak). With market cap around Rp70.4 trillion, the price of ADRO is almost four times of its equity value, and its PER ratio is 20.4 times. This is overvalue.

Nevertheless, the increase of the coal price will give positive effect to the price of ADRO, so that ADRO still have an opportunity for strengthening, but this might not happen during the recent days. Within a week later, ADRO may be stagnant at level 2,200 or a little bit corrected. How big its correction will be? I predict it will be not too big because technically, ADRO fair price is 1,950 - 2,050.

However, can ADRO strengthen within a week? Yes of course it possible, but the possibility is very small.

Original article is written on May 1, 2010

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