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

Soft performance as expected

Maintain Buy with reduced TP of IDR1,300/sh

1Q25 results: largely in line

Overall 1Q25 results were soft and behind our expectations despite the seasonally weaker 1Q due to the heavy rain weather for the coal industry thus impacting transportation. 1Q25 revenue of USD200mn (-36% q-q, -27% y-y; Fig. 1) made up 19% of the consensus estimate for 2025, with earnings of USD64mn (-38% q-q, -44% y-y), comprising 21% of the consensus estimate. Production for the quarter was at 1.6Mt (-12% q-q, +2% y-y), while sales came in at 1.3Mt (-30% q-q, +22% y-y), and stripping ratio remained at 3.6x. Royalty costs experienced a decrease of -23% q-q and -36% y-y, while mining services and freight costs were -7%/-26% q-q and +1%/+3% y-y respectively.

Coking coal price remains under pressure

Coking coal prices have retreated to USD169/t (March 2025), down 34% from 2024 peaks, as Chinese steel output cuts (-5.6% y-y) and global oversupply have dominated the sentiment. China in particular faces overcapacity, and thus mandated crude steel cuts and BF-to-EAF transitions, limiting long-term coking coal demand. India's demand resilience could help find support for coking coal prices for the rest of the year on top of production cost floors among top producers in Australia.

Revise earnings projections and maintain Buy with a lower TP of IDR1,300

We revise FY25F and FY26F earnings projections by -34% and -10% (Fig. 7), respectively, due to: 1) lower coking coal assumptions, 2) lower sales target for FY26F to 6.5Mt (from 7Mt), and 3) revised-up cash cost outlook by ~26% for FY25F-FY26F (see Fig. 7 for assumption changes). Despite that, we expect ADMR to still book a 10% earnings CAGR for FY25F-FY27F, assuming USD205/t LT coking coal prices and aluminum contribution starting in end-2025. Nonetheless, ADMR also benefits from the cost efficiency with low stripping ratio.

We value ADMR using SOTP, derived from its Coking coal and Aluminum segment valuation (Fig. 8), with 13% WACC (previously 9% WACC) implying 10.6x FY25F P/E. Currently ADMR is trading at 7.5x FY25F EPS. Risks to our call include: 1) coking coal price fluctuation, 2) higher-than-expected supply from major coking coal producers (Australia), and 3) slowing India/China steel demand.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (USD)	Actual	Old	New	Old	New	Old	New
Revenue (mn)	1,154	1,196	1,245	2,191	2,126	0	2,376
Reported net profit (mn)	433	457	300	450	407	0	408
Normalised net profit (mn)	433	457	300	450	407	0	408
FD normalised EPS	1.06c	1.12c	0.73c	1.10c	0.99c		1.00c
FD norm. EPS growth (%)	-1.8	-1.5	-30.6	-1.5	35.4		0.3
FD normalised P/E (x)	5.4	–	7.5	–	5.5	–	5.5
EV/EBITDA (x)	3.7	–	5.1	–	4.2	–	4.1
Price/book (x)	1.7	–	1.3	–	1.1	–	0.9
Dividend yield (%)	–	–	–	–	–	–	–
ROE (%)	36.3	27.4	19.2	21.2	21.2		17.6
Net debt/equity (%)	net cash	net cash	net cash	4.0	7.7		5.1

Source: Company data, Verdhana estimates

Key data on Adaro Minerals Indonesia

Income statement (USDmn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Revenue	1,086	1,154	1,245	2,126	2,376
Cost of goods sold	-503	-576	-806	-1,475	-1,695
Gross profit	583	578	439	651	680
SG&A	-9	-38	-56	-112	-129
Employee share expense
Operating profit	574	539	383	539	551
EBITDA	608	577	431	598	618
Depreciation	-34	-38	-48	-59	-67
Amortisation
EBIT	574	539	383	539	551
Net interest expense	-31	-12	-21	-23	-23
Associates & JCEs
Other income	20	30	29	25	22
Earnings before tax	563	558	391	542	550
Income tax	-123	-123	-86	-110	-110
Net profit after tax	441	435	305	432	440
Minority interests	0	-2	-5	-25	-32
Other items
Preferred dividends
Normalised NPAT	441	433	300	407	408
Extraordinary items
Reported NPAT	441	433	300	407	408
Dividends	0	0	0	0	0
Transfer to reserves	441	433	300	407	408
Valuations and ratios
Reported P/E (x)	5.5	5.4	7.5	5.5	5.5
Normalised P/E (x)	5.5	5.4	7.5	5.5	5.5
FD normalised P/E (x)	5.5	5.4	7.5	5.5	5.5
Dividend yield (%)	–	–	–	–	–
Price/cashflow (x)	7.9	4.0	6.0	4.2	4.8
Price/book (x)	2.5	1.7	1.3	1.1	0.9
EV/EBITDA (x)	3.8	3.7	5.1	4.2	4.1
EV/EBIT (x)	4.0	3.9	5.8	4.7	4.6
Gross margin (%)	53.7	50.1	35.3	30.6	28.6
EBITDA margin (%)	56.0	50.0	34.6	28.1	26.0
EBIT margin (%)	52.9	46.7	30.8	25.4	23.2
Net margin (%)	40.6	37.5	24.1	19.1	17.2
Effective tax rate (%)	21.8	22.0	21.9	20.2	20.0
Dividend payout (%)	0.0	0.0	0.0	0.0	0.0
ROE (%)	58.3	36.3	19.2	21.2	17.6
ROA (pretax %)	61.0	42.0	22.1	21.6	17.1
Growth (%)
Revenue	19.6	6.3	7.9	70.7	11.8
EBITDA	24.1	-5.1	-25.3	38.8	3.3
Normalised EPS	32.6	-1.8	-30.6	35.4	0.3
Normalised FDEPS	32.6	-1.8	-30.6	35.4	0.3
Source: Company data, Verdhana estimates

Cashflow statement (USDmn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
EBITDA	608	577	431	598	618
Change in working capital	-150	93	28	60	-12
Other operating cashflow	-149	-94	-85	-123	-141
Cashflow from operations	308	577	374	536	466
Capital expenditure	-165	-387	-369	-468
Free cashflow	143	190	5	68	466
Reduction in investments		0	0	0	0
Net acquisitions	10	9	-192	-252
Dec in other LT assets					-36
Inc in other LT liabilities					2
Adjustments	-40	-79	-13	-127	-429
CF after investing acts	113	120	-200	-311	3
Cash dividends	0	0	0	0
Equity issue
Debt issue	-40	-96	109	25
Convertible debt issue
Others	1	2	0	0	32
CF from financial acts	-38	-94	109	25	32
Net cashflow	75	26	-90	-285	35
Beginning cash	511	586	613	522	237
Ending cash	586	613	522	237	272
Ending net debt	-171	-317	-122	163	128
Balance sheet (USDmn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash & equivalents	586	613	522	237	272
Marketable securities
Accounts receivable	182	95	102	175	195
Inventories	68	70	84	139	194
Other current assets	48	65	70	120	134
Total current assets	885	843	779	670	794
LT investments
Fixed assets	724	1,065	1,578	2,238	2,599
Goodwill
Other intangible assets
Other LT assets	87	166	179	306	341
Total assets	1,695	2,074	2,535	3,214	3,734
Short-term debt
Accounts payable	33	54	75	137	157
Other current liabilities	176	182	215	390	446
Total current liabilities	210	235	290	527	604
Long-term debt	416	296	400	400	400
Convertible debt
Other LT liabilities	32	40	38	48	50
Total liabilities	657	571	728	974	1,054
Minority interest	62	91	96	121	154
Preferred stock
Common stock	121	121	121	121	121
Retained earnings	856	1,291	1,591	1,998	2,406
Proposed dividends
Other equity and reserves	0	0	0	0	0
Total shareholders' equity	976	1,411	1,712	2,118	2,527
Total equity & liabilities	1,695	2,074	2,535	3,214	3,734
Liquidity (x)
Current ratio	4.22	3.58	2.69	1.27	1.32
Interest cover	18.6	45.2	18.3	23.8	24.3
Leverage
Net debt/EBITDA (x)	net cash	net cash	net cash	0.27	0.21
Net debt/equity (%)	net cash	net cash	net cash	7.7	5.1
Per share
Reported EPS (USD)	1.08c	1.06c	0.73c	0.99c	1.00c
Norm EPS (USD)	1.08c	1.06c	0.73c	0.99c	1.00c
FD norm EPS (USD)	1.08c	1.06c	0.73c	0.99c	1.00c
BVPS (USD)	0.02	0.03	0.04	0.05	0.06
DPS (USD)	0.00	0.00	0.00	0.00	0.00
Activity (days)
Days receivable	41.6	44.0	28.9	23.8	28.4
Days inventory	44.1	43.9	35.1	27.7	35.8
Days payable	20.4	27.6	29.1	26.2	31.7
Cash cycle	65.2	60.2	34.9	25.3	32.6
Source: Company data, Verdhana estimates

Company profileADMR is Indonesia’s leading metallurgical coal producer. ADMR carries out an integrated mining services through its subsidiaries and currently stands as the first and only hard coking coal (HCC) operations in Indonesia. The company is owned by 1) PT Adaro Energy Indonesia Tbk (ADRO IJ, Buy) (68.55% stake), 2) PT Adaro Mining Technologies (8.83% stake), 3) PT Alam Tri Abadi (6.46% stake), and 4) public ownership (16.16%). The company went public on 3rd of January 2022, offering 15% ownership for a valuation of IDR605bn.

Valuation MethodologyWe value ADMR using SOTP with a TP of IDR1,300 derived from its Coking coal and Aluminum segment valuation with 13% WACC implying 10.6x FY25F P/E. The benchmark index is the JCI index.

Risks that may impede the achievement of the target priceRisks to our call include: 1) coking coal price fluctuation, 2) higher than expected supply from major coking coal producer (Australia), and 3) slowing India/China steel demand.

ESGOne of the missions to achieve the vision of PT Adaro Minerals Indonesia (AMI) to be a leading Indonesian mining companies is “to support community and national developments”. This mission is pursued through corporate social responsibility in the form of the empowerment activities for the communities living surrounding the operational locations. The Decree of the Minister of Environment and Mineral Resources number 1824 K/30/MEM/2018 on the Implementation Guideline on Community Development and Empowerment, which is the reference of these activities, contains eight community development and empowerment (locally: PPM) programs: education, health, real income / job, economic self sufficiency, socio culture, opportunities for the local communities to participate in environmental management, establishment of community institutions in supporting PPM self sufficiency, and PPM supporting infrastructure.

Fig. 1: ADMR– 1Q25 results recap vs prior estimates

ADMR 1Q25 results
in USD mn	1Q24	4Q24	1Q25	QoQ	YoY	% of FY25F	% to cons
Revenue	275	313	200	-36%	-27%	17%	19%
Gross Profit	157	141	83	-42%	-47%	13%	18%
Operating Profit	147	130	72	-45%	-51%	12%	18%
Net Income	115	103	64	-38%	-44%	14%	21%

GPM	57.2%	45.1%	41.3%
OPM	53.4%	41.5%	35.9%
NPM	42.0%	33.0%	32.1%

Significant costs
Royalties - COGS	41	34	26	-23%	-36%
Mining services - COGS	46	50	46	-7%	1%
Freight costs - COGS	30	41	31	-26%	3%

ADMR Operational	1Q24	4Q24	1Q25	QoQ	YoY	% of FY25F
Production vol (mt)	1.6	1.8	1.6	-12%	2%	23%
Sales vol (mt)	1.1	1.8	1.3	-30%	22%	22%
ASP (USD/t)	261.5	171.1	156.2	-9%	-40%
OB removal (m bcm)	5.3	6.5	5.7	-12%	6%
Stripping ratio	3.4	3.6	3.6	-1%	4%

Source: Company data, Verdhana estimates

Fig. 8: ADMR— SOTP valuation – Adding aluminum segment to our valuation

FY25F SOTP by Projects	Implied gross EV + disc adj (USD mn)	EV stake + disc adj (USD mn)	Valuation Methodology	Implied valuation at TP	Implied Valuation at TP Method	SOTP (%)	Per share
Current business
Metcoal business	2,414	2,414	22-years DCF - WACC (13%)	9.1	PE FY25F (x)	84%	974

Upcoming project
PT Kalimantan Alumunium Industry (65%)	707	460	20-years DCF - WACC (13%)	472	EV/ton capacity (USD/t)	16%	186

Total EV	3,121	2,874				100%	1,160
Net Debt/(Cash) - FY24		(295)					(119)
Total Net Asset Value (NAV)		3,168					1,279
Per share (IDR/share)							1,300

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 1,800	IDR 1,300
Closing price 2 May 2025	IDR 905
Implied upside	+43.6%
Market Cap (USD mn)	2,251.9
ADT (USD mn)	1.8

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	2,251.9
Free float (%)	16.2
3-mth ADT (USDmn)	1.8

(%)	1M	3M	12M
Absolute (IDR)	0.6	-10.0	-33.2
Absolute (USD)	1.3	-10.7	-34.2
Rel to Jakarta Stock Exchange Composite Index	-4.1	-5.8	-29.0

Research Analysts

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

Edward Prima (edward.prima@verdhana.id)

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

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

Soft performance as expected

Key data on Adaro Minerals Indonesia

Fig. 1: ADMR– 1Q25 results recap vs prior estimates

Fig. 2: ADMR – Key performance charts – quarterly trends

Fig. 3: ADMR production and sales trends

Fig. 4: ADMR high EBITDA with sustained mid-teens ROE

Fig. 5: ADMR capex schedule and interest coverage

Fig. 6: ADMR ASP and cash cost trend

Fig. 7: Assumption changes

Fig. 8: ADMR— SOTP valuation – Adding aluminum segment to our valuation

Fig. 9: Peer valuation

Rating Table

Relative performance chart

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

Fig. 1: ADMR– ﻿ 1Q25 results recap vs prior estimates

Fig. 2: ADMR – Key performance charts – quarterly trends

Fig. 3: ADMR production and sales trends

Fig. 4: ADMR high EBITDA with sustained mid-teens ROE

Fig. 5: ADMR capex schedule and interest coverage

Fig. 6: ADMR ASP and cash cost trend

Fig. 7: Assumption changes

Fig. 8: ADMR— SOTP valuation – Adding aluminum segment to our valuation

Fig. 9: Peer valuation

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Fig. 1: ADMR– 1Q25 results recap vs prior estimates