Adaro Andalan Indonesia (AADI IJ) (Buy) - Meaningful Kestrel divestment

Meaningful Kestrel divestment

Maintain Buy rating with a higher TP to IDR13,500

1Q26 review: Soft results; below run-rate on lower volumes and rising mining costs

1Q26 revenue of USD1,044mn (-20% q-q, -10% y-y) accounted for 18%/19% of our/ Bloomberg consensus estimates for FY26F, and net income of USD143mn (-17% q-q, -27% y-y) constituted 13%/16% of our/consensus estimates. Production declined to 5.2mt (-12% q-q, -5% y-y) and sales to 15.1mt (-22% q-q, -9% y-y), though ASP remained largely flat. GPM was stable q-q at 24.7% but lower y-y (vs 29.8% in 1Q25), driven by higher mining costs (+24% y-y) on an elevated strip ratio of 4.2x (vs 3.2x in 1Q25) and overall fuel costs.

Non-flagship Kestrel asset sale a positive, in our view

We view AADI’s recent divestment of the Kestrel (unlisted) coking coal asset (48% owned) to Yancoal (YAL AU; Not rated) for USD1.85bn (gross payment) as a positive, given: (1) Kestrel’s attractive valuation of 33x FY25 P/E resulting in a gain of ~USD150mn on the transaction; and (2) potential special dividend, in our view, translating into up to ~15% yield. The transaction includes a potential additional contingent cash consideration of USD550mn (at 100% valuation) if Hard Coking Coal FOB Australia reached above USD225/t. We see limited impact on current recurring earnings as Kestrel’s JV income only accounted for USD17mn in FY25 or ~2% of AADI’s earnings.

Raising FY26F revenue/earnings by 9%/12%; potential special dividend

We increase our FY26F revenue/earnings by 9%/12% as we assume a higher coal price but lower production volumes of 61Mt (previously 69Mt), building in a higher DMO allocation of 27% (vs 25% previously). Despite this, AADI’s IUPK licence provides relatively more production certainty along the way, in our view. We expect AADI to generate robust annual OCF of ~USD916-985mn for FY26-29F. We factor in 25% yield for the year (assuming USD700mn in special dividend and a 50% payout ratio) with limited capex supporting a rising payout trajectory. AADI plans to undertake a buyback program worth ~USD292mn (5.9% of its current market cap) starting 23 May 2026 (12 months), subject to shareholder approval.

Maintain Buy; TP raised to IDR13,500, implying 23% upside

In deriving our DCF-based TP of IDR13,500 (vs IDR9,600 previously), implying FY26F P/E of 8x, we assume a WACC of 11% (previously 14%). We estimate every 1% rise in Newcastle coal price could drive a ~2% rise in AADI's earnings. Downside risks: (1) coal price decline, (2) weaker China economic activity, (3) regulatory changes, incl. RKAB quota and coal export tax.

Year-end 31 Dec	FY25		FY26F		FY27F		FY28F
Currency (USD)	Actual	Old	New	Old	New	Old	New
Revenue (mn)	4,910	4,407	4,797	4,325	5,132	0	5,091
Reported net profit (mn)	714	657	732	645	725	0	714
Normalised net profit (mn)	714	657	732	645	725	0	714
FD normalised EPS	9.17c	8.43c	9.41c	8.29c	9.31c		9.17c
FD norm. EPS growth (%)	-41.0	-10.7	2.5	-1.8	-1.0		-1.5
FD normalised P/E (x)	7.0	–	6.9	–	6.9	–	7.0
EV/EBITDA (x)	4.5	–	5.0	–	4.1	–	4.2
Price/book (x)	1.6	–	1.8	–	1.7	–	1.6
Dividend yield (%)	5.0	–	24.9	–	11.7	–	11.5
ROE (%)	22.6	19.6	23.8	17.5	25.1		23.6
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash		net cash

Source: Company data, Verdhana estimates

Key data on Adaro Andalan Indonesia

Income statement (USDmn)
Year-end 31 Dec	FY24	FY25	FY26F	FY27F	FY28F
Revenue	5,320	4,910	4,797	5,132	5,091
Cost of goods sold	-3,854	-3,649	-3,702	-3,812	-3,791
Gross profit	1,466	1,262	1,095	1,320	1,300
SG&A	-316	-247	-202	-221	-224
Employee share expense
Operating profit	1,150	1,015	893	1,098	1,076
EBITDA	1,254	1,139	1,019	1,230	1,213
Depreciation	-103	-124	-126	-131	-137
Amortisation
EBIT	1,150	1,015	893	1,098	1,076
Net interest expense	8	-5	-2	6	9
Associates & JCEs	51	17	0	0	0
Other income	331	28	152	0	0
Earnings before tax	1,540	1,055	1,043	1,104	1,085
Income tax	-213	-206	-185	-229	-224
Net profit after tax	1,327	849	858	875	860
Minority interests	-116	-89	-74	-92	-90
Other items	0	-46	-52	-58	-56
Preferred dividends
Normalised NPAT	1,211	714	732	725	714
Extraordinary items
Reported NPAT	1,211	714	732	725	714
Dividends	-2,972	-250	-1,250	-586	-580
Transfer to reserves	-1,761	464	-517	139	134
Valuations and ratios
Reported P/E (x)	4.3	7.0	6.9	6.9	7.0
Normalised P/E (x)	4.3	7.0	6.9	6.9	7.0
FD normalised P/E (x)	4.3	7.0	6.9	6.9	7.0
Dividend yield (%)	57.2	5.0	24.9	11.7	11.5
Price/cashflow (x)	3.3	6.2	5.4	5.5	5.3
Price/book (x)	1.8	1.6	1.8	1.7	1.6
EV/EBITDA (x)	4.2	4.5	5.0	4.1	4.2
EV/EBIT (x)	4.6	5.1	5.7	4.6	4.7
Gross margin (%)	27.6	25.7	22.8	25.7	25.5
EBITDA margin (%)	23.6	23.2	21.2	24.0	23.8
EBIT margin (%)	21.6	20.7	18.6	21.4	21.1
Net margin (%)	22.8	14.5	15.3	14.1	14.0
Effective tax rate (%)	13.9	19.5	17.7	20.8	20.7
Dividend payout (%)	245.4	35.0	170.7	80.8	81.2
ROE (%)	32.9	22.6	23.8	25.1	23.6
ROA (pretax %)	26.7	22.3	20.2	26.3	25.0
Growth (%)
Revenue	-10.1	-7.7	-2.3	7.0	-0.8
EBITDA	-17.3	-9.2	-10.5	20.6	-1.4
Normalised EPS	-4.7	-41.0	2.5	-1.0	-1.5
Normalised FDEPS	-4.7	-41.0	2.5	-1.0	-1.5
Source: Company data, Verdhana estimates

Cashflow statement (USDmn)
Year-end 31 Dec	FY24	FY25	FY26F	FY27F	FY28F
EBITDA	1,254	1,139	1,019	1,230	1,213
Change in working capital	-166	-126	10	-19	0
Other operating cashflow	463	-205	-93	-294	-270
Cashflow from operations	1,551	808	936	916	943
Capital expenditure	-534	-424	-214	-228	-238
Free cashflow	1,016	383	722	688	705
Reduction in investments	165	155	736	0	0
Net acquisitions	0	0	0	0
Dec in other LT assets		0	0	-19	2
Inc in other LT liabilities		0	0	16	-2
Adjustments	11	6	0	3	0
CF after investing acts	1,192	545	1,458	688	705
Cash dividends	-2,972	-250	-1,250	-586	-580
Equity issue	269	0	0	0	0
Debt issue	517	-680	0	0	0
Convertible debt issue	0	0	0	0	0
Others	-22	-208	18	-8	0
CF from financial acts	-2,208	-1,138	-1,232	-594	-580
Net cashflow	-1,016	-593	226	95	124
Beginning cash	2,534	1,519	925	1,151	1,246
Ending cash	1,519	925	1,151	1,246	1,370
Ending net debt	-49	-116	-342	-437	-561
Balance sheet (USDmn)
As at 31 Dec	FY24	FY25	FY26F	FY27F	FY28F
Cash & equivalents	1,519	925	1,151	1,246	1,370
Marketable securities	0	0	0	0	0
Accounts receivable	402	502	490	525	521
Inventories	69	85	86	88	89
Other current assets	225	283	240	257	255
Total current assets	2,214	1,796	1,968	2,115	2,235
LT investments	1,375	1,220	484	484	484
Fixed assets	1,391	1,685	1,774	1,870	1,971
Goodwill	737	737	737	737	737
Other intangible assets	0	0	0	0
Other LT assets	275	268	272	291	289
Total assets	5,993	5,706	5,235	5,498	5,715
Short-term debt	45	45	45	45	45
Accounts payable	468	523	490	505	502
Other current liabilities	360	354	343	362	359
Total current liabilities	873	923	879	913	907
Long-term debt	1,424	764	764	764	764
Convertible debt
Other LT liabilities	332	370	371	387	384
Total liabilities	2,629	2,057	2,014	2,063	2,055
Minority interest	365	316	405	479	571
Preferred stock	0	0	0	0	0
Common stock	2,423	2,423	2,423	2,423	2,423
Retained earnings	427	759	241	381	515
Proposed dividends	0	0	0	0	0
Other equity and reserves	149	152	152	152	152
Total shareholders' equity	2,999	3,334	2,816	2,955	3,090
Total equity & liabilities	5,993	5,706	5,235	5,498	5,715
Liquidity (x)
Current ratio	2.54	1.95	2.24	2.32	2.46
Interest cover	–	223.3	388.5	–	–
Leverage
Net debt/EBITDA (x)	net cash	net cash	net cash	net cash	net cash
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash
Per share
Reported EPS (USD)	15.55c	9.17c	9.41c	9.31c	9.17c
Norm EPS (USD)	15.55c	9.17c	9.41c	9.31c	9.17c
FD norm EPS (USD)	15.55c	9.17c	9.41c	9.31c	9.17c
BVPS (USD)	0.39	0.43	0.36	0.38	0.40
DPS (USD)	0.38	0.03	0.16	0.08	0.07
Activity (days)
Days receivable	28.1	33.6	37.8	36.1	37.6
Days inventory	6.3	7.7	8.5	8.3	8.5
Days payable	40.4	49.6	50.0	47.7	48.6
Cash cycle	-6.1	-8.3	-3.8	-3.2	-2.5
Source: Company data, Verdhana estimates

Company profileThe Group operates seven thermal coal mining assets, with five actively producing sites: four concession in South Kalimantan one in South Sumatra. Two other projects, Pari Coal (East Kalimantan) and Ratah Coal (Central Kalimantan), are under development, with Pari Coal advancing exploration and infrastructure construction while Ratah Coal awaits government production approval. Producing mid-calorific, low-pollutant thermal coal, these mines cater to domestic and international power plants, supporting affordable and reliable energy. As of June 30, 2024, reserves are estimated at 917.3 million tons, with resources of 4,102 million tons, while production reached 32.74 million tons. Exports of 24.29 million tons span 13 countries, alongside 8.13 million tons for domestic markets. As a vertically integrated mining company, the Group ensures efficient coal delivery through its logistics subsidiaries, managing a fleet including barges, tugboats, floating cranes, and specialized vessels. This infrastructure supports daily coal transport exceeding 771,000 tons, complemented by port and river maintenance services. Ongoing investments in mining facilities and logistics aim to meet rising global and domestic demand, solidifying the Group's position in the energy sector.

Valuation MethodologyOur target price of IDR13,500 is based on DCF with 11% WACC implying a 8x FY26F P/E multiple The benchmark index is JCI index.

Risks that may impede the achievement of the target priceDownside risk to our call: 1) sharp decline in coal price, 2) weaker China economic activity, 3) changes in local regulation.

ESGAADI has outlined their commitment to their environmental and social responsibilities. The company is targeting net zero emissions by 2060, and also focus on the social side through their "Adaro PAUD Berkarakter" program, which provides educational resources to young children in need.

Fig. 1: AADI 1Q26 results: Soft volumes

AADI 1Q26 Result
in USD mn	1Q25	4Q25	1Q26	QoQ	YoY	3M25	3M26	YoY	% to cons
Revenue	1,164	1,301	1,044	-20%	-10%	1,164	1,044	-10%	19%
Gross Profit	347	318	258	-19%	-26%	347	258	-26%	16%
Operating profit	289	243	206	-15%	-29%	289	206	-29%	17%
EBITDA	317	280	231	-18%	-27%	317	231	-27%	17%
Net Income	196	173	143	-17%	-27%	196	143	-27%	16%

GPM	29.8%	24.5%	24.7%			29.8%	24.7%
OPM	24.8%	18.7%	19.7%			24.8%	19.7%
NPM	16.8%	13.3%	13.7%			16.8%	13.7%

Significant costs
Royalties - COGS	221	146	134	-8%	-39%	221	134	-39%
Mining costs - COGS	300	398	373	-6%	24%	300	373	24%

AADI operational	1Q25	4Q25	1Q26	QoQ	YoY	3M25	3M26	YoY
Production vol (mn t)	16.0	17.2	15.2	-12%	-5%	16.0	15.2	-5%
Sales vol (mn t)	16.6	19.3	15.1	-22%	-9%	16.6	15.1	-9%
Blended ASP (USD/t)	70.2	67.6	69.3	3%	-1%	70.2	69.3	-1%
Cash cost (USD/t)	51.1	53.1	54.0	2%	6%	51.1	54.0	6%
OB removal (m bcm)	51.3	75.6	63.6	-16%	24%	51.3	63.6	24%
Strip ratio (x)	3.2	4.4	4.2	-5%	31%	3.2	4.2	31%

Note: Consensus from Bloomberg
Source: Company data, Bloomberg Finance L.P., Verdhana research

Fig. 8: AADI assumption recap

Source: Company data, Verdhana estimates

Fig. 9: AADI DCF simulation

USDmn, unless stated otherwise	2022A	2023A	2024A	2025A	2026F	2027F	2028F	2029F	2030F

EBITDA	4,000	1,516	1,254	1,139	1,019	1,230	1,213	1,234	1,255
Changes in working capital	996	(761)	(166)	(126)	10	(19)	(0)	1	(0)
Capex	(126)	(191)	(534)	(424)	(214)	(228)	(238)	(241)	(245)
Other OCF	(896)	(71)	463	(205)	(93)	(294)	(270)	(272)	(271)
FCFF	3,974	493	1,016	383	722	688	705	721	740
% YoY		-88%	106%	-62%	88%	-5%	2%	2%	3%
Terminal Value based on reserves and life of mine									5,199
Total FCFF + TV	3,974	493	1,016	383	722	688	705	721	5,939
Discount factor					1.00	0.90	0.81	0.72	0.65
PV		-	-	-	722	618	568	521	3,853
Enterprise Value			6,282
Net debt (cash) FY25			(116)
Equity Value (US$ mn)			6,398
Shares Outstanding (mn)			7,787
Target Price (USD)			0.82
USD/IDR			16,462
Target price (IDR)			13,500

Source: Company data, Verdhana estimates

Fig. 10: AADI revenue sensitivity

	AADI Earnings 2026F	Newcastle Coal Price (USD/t)
	732	115	122	128	135	142	149	155
Prod Volume (Mt)	52.0	284	346	408	469	531	593	654
	55.1	356	423	490	557	624	691	758
	61.2	499	577	654	732	810	888	966
	67.3	642	730	819	908	996	1,085	1,174
	70.4	713	807	901	995	1,090	1,184	1,278


	AADI Earnings 2026F	Newcastle Coal Price (USD/t)
	732	-15%	11%	-5%	Base	5%	10%	15%
Prod Volume (Mt)	-15%	-61%	-53%	-44%	-36%	-27%	-19%	-11%
	-10%	-51%	-42%	-33%	-24%	-15%	-6%	4%
	Base	-32%	-21%	-11%	0%	11%	21%	32%
	10%	-12%	0%	12%	24%	36%	48%	60%
	15%	-3%	10%	23%	36%	49%	62%	74%

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 Increased from IDR 9,600	IDR 13,500
Closing price 4 May 2026	IDR 10,975
Implied upside	+23.0%
Market Cap (USD mn)	4,921.5
ADT (USD mn)	13.7

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	4,921.5
Free float (%)	24.8
3-mth ADT (USDmn)	13.7

(%)	1M	3M	12M
Absolute (IDR)	1.2	33.8	63.2
Absolute (USD)	-1.0	29.2	54.4
Rel to Jakarta Stock Exchange Composite Index	1.9	48.3	60.9

Research Analysts

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

Nizam Syafik (nizam.syafik@verdhana.id)

Tags: COAL, Adaro Andalan Indonesia, AADI, AADI JK, AADI IJ, Michael Wildon Ng, Nizam Syafik

Adaro Andalan Indonesia (AADI IJ) (Buy) - Meaningful Kestrel divestment

Meaningful Kestrel divestment

Key data on Adaro Andalan Indonesia

Fig. 1: AADI 1Q26 results: Soft volumes

Fig. 2: AADI production and strip ratio

Fig. 3: AADI ASP, cash cost, cash margin trends

Fig. 4: Profitability trends (GPM, NPM, ROE)

Fig. 5: NPAT and growth

Fig. 6: Coal price correlation: AADI tracks closely to ICI 3

Fig. 7: Sales breakdown in 3M26

Fig. 8: AADI assumption recap

Fig. 9: AADI DCF simulation

Fig. 10: AADI revenue sensitivity

Rating Table

Relative performance chart

Research Analysts

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Adaro Minerals Indonesia (ADMR IJ) (Buy) - Soft performance as expected

Indika Energy (INDY IJ) (Buy) - Margin improvement due to lower stripping ratio

Adaro Andalan Indonesia (AADI IJ) (Buy) - Meaningful Kestrel divestment

Fig. 1: AADI 1Q26 results: Soft volumes

Fig. 2: AADI production and strip ratio

Fig. 3: AADI ASP, cash cost, cash margin trends

Fig. 4: Profitability trends (GPM, NPM, ROE)

Fig. 5: NPAT and growth

Fig. 6: Coal price correlation: AADI tracks closely to ICI 3

Fig. 7: Sales breakdown in 3M26

Fig. 8: AADI assumption recap

Fig. 9: AADI DCF simulation

Fig. 10: AADI revenue sensitivity

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