ADRO - Spin-off plan for AAI

ADRO - Spin-off plan for AAI 1. PUPS and IPO: ADRO plans a spin-off of its subsidiary, PT Adaro Andalan Indonesia (AAI), through a Public Offering by Shareholders (PUPS) alongside an Initial Public Offering (IPO). ADRO's ownership in AAI will decrease from 100% to 90%. 2. Pricing: The PUPS price is estimated between IDR 5,425-5,835/ sh (USD 2.45-2.63 bnvaluation). This translates to a P/E of 2.95–3.17x. On the other hand, the IPO price of AAI has yet to be determined. 3. Share Allocation: ADRO shareholders will have the right to subscribe to AAI shares in a ratio of 4.4 ADRO shares to 1 AAI share. 4. Post Spin-Off Impact on ADRO: After the spin-off, ADRO’s net profit is expected to decline by 64%. The projected EPS for 2024 is IDR 282.4/sh (EPS 2023: IDR 790.7/sh), with ADRO trading at a 13.4x P/E ratio based on the closing price on Friday, 18 October 2024 (P/E 2023: 3.1x). Additionally, ADRO is expected to have a cash reserve of approximately USD 2.8 mn post-dividend distribution (assuming 50% of its cash is distributed as dividends). 5. Potential Dividends: Special dividends from ADRO in 2024 could amount to IDR 1,170per share, offering investors a chance to reinvest into AAI. Conclusion: Investors may benefit by participating in PUPS versus the IPO. Key factors include ADRO's share price, dividend payouts, potential price movements of both ADRO and AAI, and the conversion price of AAI shares. The special dividend plan will be discussed at the Extraordinary General Meeting of Shareholders (RUPSLB) on 15 November 2024. (Source: Company, KBVS Research)