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Indika Energy (INDY IJ) (Buy) - Gold price drives Awak Mas valuation

Indika Energy (INDY IJ) (Buy) - Gold price drives Awak Mas valuation

Coal MW EP 533 20th Feb, 2025

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Gold price drives Awak Mas valuation

Maintain Buy with a lower TP of IDR2,000

Awak Mas drives valuation upside with significant progress in place

Rising global gold prices and the substantial progress on the Awak Mas Gold Project (under Nusantara Resources [unlisted]) offer significant gold exposure and upside for INDY, in our view, tapping into scalable >100koz pa gold production, comparable to Merdeka Copper Gold’s (MDKA IJ, Buy) 120ktpa Tujuh Bukit Gold project (Fig. 2). In January, INDY secured a service contract of AUD463mn with Macmahon (MAH AU, Not rated) for 7+5 years for project development, which marks tangible progress on the asset. Our calculations arrive at an NPV of USD757mn (49% of INDY’s SOTP) for the Awak Mas project, delivering a 25% project IRR and three-year payback period, assuming total development capex of USD429mn (USD239mn in sunk capex).

We fine-tune our estimates; Awak Mas to boost earnings by 2H26F

We fine-tune our estimates, now projecting Awak Mas to begin contributing from 2H26F, assuming initial production of 22koz and an average of 117koz over the next three years. At current gold prices, we expect the project to yield ~60% EBITDA margin. At peak production, we expect the project to generate ~USD200mn in EBITDA, becoming the group’s largest contributor in the future.

We revise revenue by -16%/-7% and earnings by -71%/-71% for FY24F/FY25F, respectively, as we omit the contribution from MUTU post divestment and adjust FY24F overall depreciation and amortization for Kideco. We expect Kideco (group’s largest revenue contributor) to maintain its production of 30.5Mt with a stripping ratio of 5.7x.

Resume coverage at Buy with a lower TP of IDR2,000

We maintain our Buy call on INDY with a TP of IDR2,000, implying 20x/10x FY25F/FY26F P/E multiples. Our TP is derived via a sum-of-the-parts (SOTP) methodology with a 12% WACC comprising: (1) DCF for Kideco and its coal supporting business; and (2) DCF for Nusantara Resources Limited (Awak Mas Gold Project). Awak Mas Project contributes to 49% of our SOTP valuation. Risks include: 1) coal price volatility; 2) execution on gold project; and 3) changes in mining regulations.

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (USD)ActualOldNewOldNewOldNew
Revenue (mn)3,0272,7612,3302,3532,19002,243
Reported net profit (mn)1201444211032066
Normalised net profit (mn)1201444211032066
FD normalised EPS2.30c2.77c0.81c2.11c0.62c1.26c
FD norm. EPS growth (%)-73.6-44.5-64.6-24.0-23.7102.7
FD normalised P/E (x)4.6–12.6–16.4–8.1
EV/EBITDA (x)3.4–6.3–8.0–6.2
Price/book (x)0.5–0.4–0.4–0.4
Dividend yield (%)2.3–1.8–3.7–6.6
ROE (%)9.910.23.47.32.54.9
Net debt/equity (%)50.5net cash58.3net cash70.368.8
Source: Company data, Verdhana estimates

Key data on Indika Energy

Income statement (USDmn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
4,335
3,027
2,330
2,190
2,243
Cost of goods sold
-2,884
-2,475
-1,985
-1,889
-1,879
Gross profit
1,451
552
344
301
364
SG&A
-241
-240
-177
-172
-175
Employee share expense
Operating profit
1,210
312
167
129
188
EBITDA
1,408
369
202
172
237
Depreciation
-62
-19
-34
-41
-47
Amortisation
-136
-38
-2
-2
-2
EBIT
1,210
312
167
129
188
Net interest expense
-94
-65
-72
-81
-86
Associates & JCEs
31
25
25
27
27
Other income
-137
-34
1
0
0
Earnings before tax
1,010
238
121
74
129
Income tax
-500
-87
-54
-30
-52
Net profit after tax
511
151
66
45
77
Minority interests
-58
-31
-24
-12
-12
Other items
Preferred dividends
Normalised NPAT
453
120
42
32
66
Extraordinary items
Reported NPAT
453
120
42
32
66
Dividends
-73
-13
-10
-20
-35
Transfer to reserves
379
107
33
13
31
Valuations and ratios
Reported P/E (x)
1.3
4.6
12.6
16.4
8.1
Normalised P/E (x)
1.3
4.6
12.6
16.4
8.1
FD normalised P/E (x)
1.3
4.6
12.6
16.4
8.1
Dividend yield (%)
12.8
2.3
1.8
3.7
6.6
Price/cashflow (x)
0.5
–
5.3
6.5
5.0
Price/book (x)
0.5
0.5
0.4
0.4
0.4
EV/EBITDA (x)
0.5
3.4
6.3
8.0
6.2
EV/EBIT (x)
0.5
3.9
7.4
10.3
7.6
Gross margin (%)
33.5
18.2
14.8
13.7
16.2
EBITDA margin (%)
32.5
12.2
8.7
7.9
10.6
EBIT margin (%)
27.9
10.3
7.2
5.9
8.4
Net margin (%)
10.4
4.0
1.8
1.5
2.9
Effective tax rate (%)
49.4
36.7
45.0
40.0
40.0
Dividend payout (%)
16.2
10.6
22.9
60.8
53.0
ROE (%)
46.4
9.9
3.4
2.5
4.9
ROA (pretax %)
47.2
13.2
7.0
5.3
7.0
Growth (%)
Revenue
41.2
-30.2
-23.0
-6.0
2.4
EBITDA
39.7
-73.8
-45.2
-14.7
37.8
Normalised EPS
684.3
-73.6
-64.6
-23.7
102.7
Normalised FDEPS
684.3
-73.6
-64.6
-23.7
102.7
Source: Company data, Verdhana estimates
Cashflow statement (USDmn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
1,408
369
202
172
237
Change in working capital
446
-696
26
6
-9
Other operating cashflow
-755
-90
-127
-96
-123
Cashflow from operations
1,099
-418
101
82
106
Capital expenditure
-85
-145
-223
-237
-92
Free cashflow
1,014
-563
-122
-155
14
Reduction in investments
-103
-23
-16
-17
-17
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
-3
-29
-2
0
0
CF after investing acts
907
-614
-140
-172
-3
Cash dividends
-40
-73
-13
-10
-20
Equity issue
Debt issue
-359
-25
182
-2
0
Convertible debt issue
Others
-220
7
22
11
10
CF from financial acts
-619
-92
191
0
-10
Net cashflow
288
-706
51
-172
-13
Beginning cash
867
1,156
449
500
328
Ending cash
1,156
450
500
328
315
Ending net debt
-59
623
753
924
937
Balance sheet (USDmn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
1,156
449
500
328
315
Marketable securities
Accounts receivable
534
344
319
300
307
Inventories
61
51
45
43
42
Other current assets
252
640
640
640
640
Total current assets
2,003
1,484
1,504
1,311
1,305
LT investments
242
265
280
297
314
Fixed assets
355
415
604
800
845
Goodwill
649
649
652
652
652
Other intangible assets
110
37
38
36
34
Other LT assets
235
264
264
264
264
Total assets
3,594
3,113
3,342
3,359
3,413
Short-term debt
117
429
487
487
487
Accounts payable
343
278
274
261
259
Other current liabilities
720
276
275
272
272
Total current liabilities
1,179
982
1,036
1,020
1,018
Long-term debt
980
643
767
766
766
Convertible debt
Other LT liabilities
95
111
111
111
111
Total liabilities
2,254
1,736
1,913
1,896
1,894
Minority interest
151
144
137
148
158
Preferred stock
Common stock
311
311
311
311
311
Retained earnings
888
935
964
987
1,033
Proposed dividends
Other equity and reserves
-10
-12
17
17
17
Total shareholders' equity
1,189
1,233
1,292
1,315
1,361
Total equity & liabilities
3,594
3,113
3,343
3,359
3,414
Liquidity (x)
Current ratio
1.70
1.51
1.45
1.29
1.28
Interest cover
12.8
4.8
2.3
1.6
2.2
Leverage
Net debt/EBITDA (x)
net cash
1.69
3.73
5.36
3.95
Net debt/equity (%)
net cash
50.5
58.3
70.3
68.8
Per share
Reported EPS (USD)
8.69c
2.30c
0.81c
0.62c
1.26c
Norm EPS (USD)
8.69c
2.30c
0.81c
0.62c
1.26c
FD norm EPS (USD)
8.69c
2.30c
0.81c
0.62c
1.26c
BVPS (USD)
0.23
0.24
0.25
0.25
0.26
DPS (USD)
0.01
0.00
0.00
0.00
0.01
Activity (days)
Days receivable
42.9
52.9
52.1
51.6
49.4
Days inventory
6.6
8.3
8.9
8.5
8.3
Days payable
40.5
45.8
50.9
51.7
50.5
Cash cycle
9.0
15.4
10.0
8.4
7.2
Source: Company data, Verdhana estimates
Company profileEstablished in 2000, INDY is the mining and energy arm of the Indika Group and was listed on IDX in 2008. In 2004, INDY purchased PT Kideco Jaya Agung (Kideco), which was established back in 1982 with a concession area of 50,921 hectares in East Kalimantan. Kideco holds coal mining rights under a first-generation Coal Contract of Work (CCoW) until 2023. In 2022, Kideco produced 35mn tons of coal. In 2012, INDY acquired an indirect 85% equity interest in Multi Tambangjaya Utama (MUTU IJ, Not rated), which is also a high-grade bituminous thermal and coking coal mining company with a concession area of 24,970 hectares in Central Kalimantan. INDY also has a coal trading company that went to operation in 2014. Indika Energy Trading is sourcing, supplying, and trading coal products to both the domestic and seaborne market. Besides coal mining, INDY also provides energy services, which encompasses EPC, operations and maintenance, and logistics. Currently, the company has four pillars of business that encompass energy resources, energy services, energy infrastructure, and a diversified investment portfolio for its transformation, namely bauxite (Mekko) and gold mining (Nusantara Resources). In addition to its mineral investments, Indika also expanded its presence in the EV segment.
Valuation MethodologyOur TP of IDR2,000 is derived via a sum-of-the-parts (SOTP) methodology with 12% WACC comprised of: (1) DCF for Kideco and its coal supporting business; and (2) DCF for Nusantara Resources Limited (Awak Mas Gold Project). Awak Mas Project contributes to 49% of our SOTP valuation.
Risks that may impede the achievement of the target priceDownside risks include 1) Coal price volatility, 2) execution on gold project, 3) changes in mining regulation.
ESGINDY aims to shift away from coal and generate 50% of its revenue from non-coal businesses by 2025. To achieve this, INDY is investing in the 2W EV space, whereby the company has signed a Memorandum of Understanding together with PT Industri Baterai Indonesia (IBC), Hon Hai Precision Co. Ltd. (Foxconn), and Gogoro Inc. (Gogoro), a Taiwanese 2W EV manufacturer. On top of this, Indika has established PT Electra Mobilitas Indonesia (EMI), which plans to start by importing and distributing 2W EV. Despite still in the early innings, the potential is massive considering Indonesia’s annual 2W sales pre-covid was over 6mn units. Last but not least, Indika has formed a solar power business JV named Empat Mitra Indika Tenaga Surya (EMITS), in which INDY partners with a leading solar developer from India, Fourth Partner Energy Limited (4PEL). The current goal is to install 500MW of solar power over the next 5 years.

 

Fig. 1: First 5 years of Awak Mas Gold Production

Note:  Based on latest available DFS in 2021.
Source: Company data, Verdhana estimates
Fig. 2: Gold Production and Grade Comparison

Note:  BRMS includes future production.
Source: Company data, Verdhana research

 

Fig. 3: SOTP valuation

SOTP by ProjectsEV (USD mn)Valuation MethodologyKideco FY25F NPAT (USDmn)Implied valuation at TPImplied Valuation at TP MethodPer share
Current business       
Kideco and other supporting business            779DCF - WACC (12.2%)               32             24.1 PE FY25F (x)            2,390
Nusantara resources (Awak Mas)            757DCF - WACC (12.2%)            330.6 EV/Resources (USD/oz)            2,325
        
Total EV         1,536                4,715
Net Debt/(Cash) - FY24E            753                2,315
Minority interests - FY24E            137                   420
Total Net Asset Value (NAV)            646                1,985
Per share (IDR/share)                 2,000
Source: Company data, Verdhana estimates

 

Fig. 4: Awak Mas gold project DCF

Awak Mas Gold ProjectUnit202220232024F2025F2026F2027F2028F2029F2030F2031F2032F2033F2034F2035F2036F2037F2038F2039F2040F2041F
Gold PriceUSD/oz        2,759     2,820     2,882     2,946     3,010     3,077     3,144     3,213     3,284     3,356     3,430     3,506     3,583     3,662     3,742     3,825
Production VolumeAu Koz            40        110        132        108        122          98          98          90          82          99          94        119        118          90          52          10
Gold Sales VolumeAu Koz            40        110        132        108        122          98          98          90          82          99          94        119        118          90          52          10
RevenueUSD m           110        310        380        318        367        302        308        289        269        332        322        417        423        330        195          38
Total Cash CostUSD/oz           985     1,014     1,045     1,076     1,108     1,142     1,176     1,211     1,248     1,285     1,324     1,363     1,404     1,446     1,490     1,534
All-In Sustaining CostUSD/oz        1,123     1,155     1,189     1,223     1,259     1,296     1,333     1,372     1,412     1,453     1,495     1,539     1,583     1,629     1,677     1,726
EBITDAUSD m            71        199        243        202        232        190        193        180        167        205        198        255        257        199        117          23
D&AUSD m            20          20          20          20          20          20          20          20          20          20          20          20          20          20          -            20
Interest exp            (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)         (19)
PBTUSD m            32        160        204        163        193        151        154        141        128        166        159        216        218        160          98         (16)
Sustaining CapexUSD m             (6)         (16)         (19)         (16)         (18)         (15)         (15)         (14)         (13)         (17)         (16)         (21)         (21)         (16)         (10)           (2)
Development CapexUSD m       (37)           (66)          (136)       (170)           (20)          -            -            -            -            -            -            -            -            -            -            -            -            -            -            -  
Total capexUSD m       (37)           (66)          (136)       (170)           (26)         (16)         (19)         (16)         (18)         (15)         (15)         (14)         (13)         (17)         (16)         (21)         (21)         (16)         (10)           (2)
TaxesUSD m             (7)         (35)         (45)         (36)         (42)         (33)         (34)         (31)         (28)         (37)         (35)         (48)         (48)         (35)         (22)            4
Free Cash FlowUSD m       (37)           (66)          (136)       (170)            38        148        179        150        171        141        144        135        125        152        147        187        188        148          86          25
   
NPVUSD m     757
IRR25% 
Source: Company data, Verdhana estimates

 

Fig. 5: Awak Mas NPV sensitivity

 Awak Mas NPVGold Price (USD/oz)
             757.2             2,400         2,500             2,600         2,759         2,800         2,900         3,000         3,100
Cash costs (USD/oz)            1,086             505.2         558.6             612.0         697.1         718.8         772.2         825.5         878.9
            1,034             536.0         589.4             642.8         727.9         749.6         802.9         856.3         909.7
               985             565.3         618.7             672.1         757.2         778.9         832.2         885.6         939.0
               936             594.6         648.0             701.4         786.5         808.2         861.6         914.9         968.3
               889             622.5         675.9             729.2         814.3         836.0         889.4         942.8         996.2
 Awak Mas NPVGold Price (USD/oz)
               2,400         2,500             2,600         2,759         2,800         2,900         3,000         3,100
Cash costs (USD/oz)            1,086-33%-26%-19%-8%-5%2%9%16%
            1,034-29%-22%-15%-4%-1%6%13%20%
               985-25%-18%-11%0%3%10%17%24%
               936-21%-14%-7%4%7%14%21%28%
               889-18%-11%-4%8%10%17%25%32%
Note:  Base ASP and cash cost (exclude sustaining capital) is in 2026F when mine starts operating
Source: Company data, Verdhana estimates
Fig. 6: Kideco production and strip ratio

Source: Company data, Verdhana estimates
Fig. 7: Kideco ASP, cash cost, and cash margin trend

Source: Company data, Verdhana estimates
Fig. 8: INDY NPAT and growth

Source: Company data, Verdhana estimates
Fig. 9: Profitability trend (GPM, NPM, ROE)

Source: Company data, Verdhana estimates

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Reduced from IDR 2,510
IDR 2,000
Closing price
18 February 2025
IDR 1,625
Implied upside+23.1%
Market Cap (USD mn)520.4
ADT (USD mn)1.1

Relative performance chart



Source: LSEG, Verdhana
M cap (USDmn)
520.4
Free float (%)
29.1
3-mth ADT (USDmn)
1.1
(%)
1M
3M
12M
Absolute (IDR)
-3.3
15.2
21.7
Absolute (USD)
-2.7
12.2
16.8
Rel to Jakarta Stock Exchange Composite Index
1.3
19.5
28.6

Research Analysts

Michael Wildon Ng (michael.wildon@verdhana.id) 

Edward Prima (edward.prima@verdhana.id)

Tags: COAL, INDY, INDY JK, INDY IJ, Michael Wildon Ng, Edward Prima
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