When Berau Coal Enery (BRAU), a coal company, decided to hold IPO
sometimes ago, some analysts slightly questioned the decision. It was because
regardless of BRAU’s fundamental sector itself, coal sector in Indonesia was on
the bad state lately. On the late 2009, most of the coal companies in Indonesia
were enjoying the increase in revenue and net income significantly, which was
supported by the increase in the price of coal. But in the first quarter 2010,
the coal companies’ revenue started to decline, along with the sluggishness of
production volume, and the decline was still continued until the first half
2010.
Let’s take an example of Adaro Energy (ADRO), which experienced
decline in net income of 48.7% on the first half 2010 compared to the first
half 2009. As well as Bumi Resources (BUMI), which its net income declined
30.0%. You can check the other coal companies: most of them experienced
declining in performance with various percentage, including BRAU, except maybe
for other smaller-sized coal companies.
The decrease in performance was due to the decline in coal
production volume, so automatically, it also mean decreased the sales volume.
The cause? It was weather factor. In the last months, heavy rain still drench
most areas in Indonesia including the coal mine sites, though it was the dry
season. The heavy rains was clearly obstructed the coal production process,
particularly the draining process. As we’ve know, the coal must be dried first
before it can be sold (the wet coal cannot be used for fuel), where the
draining process is so difficult if the bad weather continues. As a result, the
overall production process was obstructed.
The decline in the coal sector's performance inevitably influenced
the stock price of coal in the stock exchange, although not all of them.
However, some popular coal stocks started to move lower. ADRO that some times
before was steady in position of 2,000 – 2,100, now began to descend to
position of 1,940. BUMI was also only capable of reciprocating in the position
of 1,700 (in average). What about BRAU?
In contrast to the expectations of many analysts (including me) who estimated that
BRAU will rise a lot, BRAU was only able to soar momentarily, thereafter
continue to be dragged into weakening like other coal stocks. When this article
was written, BRAU stalled at position of 420, or only rose 20 points from its initial price.
The good news is, though the majority of the coal companies
recorded a decline in performance which impact on its stock price decline,
however, some smaller-sized coal companies was still able to record an
improvement in performance. For examples was Bayan Resources (BYAN) which
recorded net profit of 45.1% in first half 2010. As a result, BYAN currently
firmly in the position of 9,100, after the end of last June was still in the
position of 6,200. It means that BYAN has gone up more than 40%! Although in
valuation, the price of 9,100 was considered too expensive, but because the
performance in first half 2010 of BYAN was prominent in the midst of the bad
atmosphere of coal sector, then psychologically, the stock still seemed cheap,
though of course the price at this point is already prone to profit taking.
Then what about Harum Energy?
Just like the other coal companies that having their heyday in
2009, Harum Energy (HRUM) also recorded a significant increase in performance
in 2009, in which the revenue rose up to 75% compared to 2008. Its net income
also rose to five times as much, or more precisely was 537%.
Unfortunately, HRUM was also included in one of the coal company
that recorded a decline in performance in 2010. In first quarter 2010, HRUM
recorded revenue of Rp895 billion and net profit of 134 billion. If the numbers
were
annualized, then the revenue would be Rp3.6 trillion and the net profit of
Rp536 billion for the full year 2010. When compared with 2009, in which HRUM
recorded revenues of Rp4.6 trillion and net profit of Rp768 billion, the achievement
of performance in first
quarter of 2010 is obviously
cannot be said to be encouraging.
But what about HRUM’s performance in first half 2010? Could it be
better? Their performance in the first half 2010 was probably better than the
first quarter 2010, but if you look at the bad weather lately, then the
possibility is small.
So, whether HRUM will eventually experience the same fate as BRAU?
Before concluding this, there is one more factor to consider:
We know that the coal sector is one of the investors’ favorite in
the the Stock Exchange. As a result, many securities or coal company itself
issued a 'powerful movement' if the performance of this sector down, so that the interest
of investors to invest in this sector did not decline as well, and the market
liquidity is maintained. What is it? Playing with the future aka prospect, of course. The performance of coal companies in first quarter
2010 and first half 2010 was not so good. But what about the company's
performance in 2011 or 2012? Who knows it will rise again like in 2009?
And that was indeed what was done by HRUM’s management. To make
its IPO sold well, HRUM announced that they targeted coal production volume of 14.5
million tons in 2012, or three times bigger compared to the realization of coal
production in last 2009, which was only 5.8 million tons. For the investors,
such information sounded as if the company has realized the coal production
amounted to14.5 million tons (in fact, it hasn’t), so they will be interested
to buy the stock.
Well, the good news is, the stock price movement of coal is often
influenced by positive sentiment like that. For example is PT Bukit Asam
(PTBA). PTBA in fact also recorded a decrease in performance in first half 2010, in which its net profit slumped 43.0%. But when this article
was written, PTBA was firmly on the position of 18,450. Yet on 24 August, PTBA
was still in position of 16,350. What happened? Apparently, the company in
question got new railway construction projects for the purpose of transporting
coal production. The presence of the railroad would facilitate the company's
production process, so that the company's revenue in the future is likely to
increase. As a result, the positive expectations of this news could boost PTBA
stock amounted to 12.8% in just a few days. Is PTBA future performance will
actually increase as expected? Not necessarily.
Back to HRUM. When compared with BRAU, HRUM has better fundamental
because it has fewer debt (even though HRUM's debt was considered pretty much).
So the news of the production targets in 2012 is likely to be responded
positively by the market, (although the response may not be as good as the
above example of PTBA, because the
content of news is different). So that HRUM’s stock still has chance to soar, maybe 10 - 20%
on its first and second trading day, before then fall back or move stagnant. Although
the investment options in HRUM is quite speculative (because only rely on
sentiment), but the risk is relatively smaller than if you buy BRAU.
But if your purpose is for long-term, then it’s better if you collect
HRUM’s stock when the weather gets better. Besides, the price of Rp5,000 per share is considered expensive, particularly if we reflect on the outlook
of the coal sector today.
PT Harum
Energy, Tbk
Performance rating on 1Q10: BB
Stock rating on 5,000: BBB
Next week, we will discuss about Agung Podomoro. Just a clue, if
the coal sector is not in a good state now, then the property sector is in the
opposite condition. Along with the improvement of Indonesia’s macro economy,
some property companies recroded an increase in performance in first half 2010.
Let’s see whether Agung Podomoro has the same improvement or not.
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