ITMG - Weak ’23 Earnings to Continue in ‘24F Despite Strong Volume Outlook

KBVS Update
Friday, 15 Mar 2024

ITMG- Weak ’23 Earnings to Continue in ‘24F Despite Strong Volume Outlook
(SELL - TP: IDR23,300)

FY23 Earnings below street’s forecast. ITMG reported a net profit of US$94.5 mn in 4Q23, (-69.1% yoy/-4.7% qoq). The decline was primarily fueled by lower coal price in 4Q23. Consequently, FY23 net profit exceeded our expectations but below street estimate, reaching US$500.3 mn (-58.3% yoy), representing 109.1% of our estimate and 90% of the street estimate.

The recent surge in coal prices is anticipated to be temporary. we maintain a bearish stance on the coal sector, forecasting a decrease in the Newcastle coal price to US$120 per tonne (-30.9% yoy) for 2024F. Despite a recent surge in coal prices due to potential export bans targeting Russia's producers, we anticipate a bearish outlook for coal in 2024. This stance reflects weak coal fundamentals, with stagnant import demand from major importers like China and India.

Profitability in 2024 is anticipated to decrease. ITMG is setting its sights on achieving a coal production of 20.2Mt in 2024, representing a robust yoy growth of 16-19%. This target is attributed to the anticipated commencement of operations at both the Graha Panca Karsa (GPK) mine in Apr’24, boasting a capacity of 1 mn tons, and the Tepian Indah Sukses (TIS) mine in 2Q24, with a capacity of 0.4Mt. Despite the bullish volume outlook, our projections still indicate a lower anticipated profit for ITMG in 2024, with expected net earnings of US$386.1 mn (-22.8% yoy). This figure is higher with our earlier forecast of US$276 mn for 2024 net profit.

We reiterate SELL for ITMG with target price of IDR23,300 (previously IDR22,850) using DCF-based TP (WACC: 12%; LTG: -10%; and long-term coal price of US$100/ tonne), which implied to 2.0x ’24F EV/EBITDA (slightly below 5-year mean).

Regards,
Benyamin Mikael -KBVS Research