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

Margin improvement due to lower stripping ratio

Maintain Buy with raised TP of IDR2,450

1Q25 results: Kideco margin improved q-q

INDY booked 1Q25 earnings of USD3mn (-85% y-y), making up 9% of our full-year estimate, largely within expectations, with margins showing overall improvement due to a lower stripping ratio. 1Q25 revenue was USD490mn (-26% q-q, -14% y-y), due to lower ASPs for Kideco, despite slightly higher sales. Kideco production for the quarter was 7.4Mt (+13% q-q, +7% y-y), with sales at 7.3Mt (+6% q-q, +1% y-y). Stripping ratio was at 5x, significantly lower compared with last year, averaging 5.7x. However, ASP was at USD54.8/t (-1% q-q, -19% y-y). Operational numbers were mainly in line with our forecast, and operating profit comprised 21-22% of our full-year forecast.

We upgrade our earnings forecast, as we expect strong performance starting 2Q25F

We upgrade our earnings forecast by +113% for FY25F, as we expect INDY to benefit from significantly lower coal royalties following regulation changes, starting from 2Q25F. We adjust our coal price assumptions downward, while increasing our gold assumptions for the year. We expect Kideco (largest group revenue contributor) to maintain its production of 31Mt. We lower our overall stripping ratio (SR) assumption to 5.4x for FY25F (previously: 5.7x), as the 1Q25 results indicate to us a lower SR of 5x. Furthermore, we adjust Awakmas gold production and increased overall costs due to higher gold royalty. At peak production, we expect Awakmas to generate ~USD200mn of EBITDA, putting it on par with the coal business.

Undemanding valuation; upside from gold asset; maintain Buy with a higher TP of IDR2,450

We maintain our Buy rating on INDY with a higher TP of IDR2,450, implying an 11x FY25F P/E multiple. Our TP is derived via a sum-of-the-parts (SOTP) methodology, with a higher WACC of 14% (previously: 12%) 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 contributing 45% of our SOTP valuation. Risks include: 1) coal price volatility, 2) execution on gold project, and 3) changes in mining regulations.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (USD)	Actual	Old	New	Old	New	Old	New
Revenue (mn)	2,447	2,190	2,088	2,243	2,167	0	2,360
Reported net profit (mn)	11	32	70	66	107	0	165
Normalised net profit (mn)	11	32	70	66	107	0	165
FD normalised EPS	0.22c	0.62c	1.35c	1.26c	2.05c		3.16c
FD norm. EPS growth (%)	-90.6	-23.7	521.3	102.7	52.2		54.1
FD normalised P/E (x)	41.0	–	6.3	–	4.2	–	2.7
EV/EBITDA (x)	6.3	–	4.8	–	4.2	–	3.2
Price/book (x)	0.4	–	0.4	–	0.3	–	0.3
Dividend yield (%)	4.5	–	7.2	–	11.1	–	13.0
ROE (%)	0.9	2.5	5.7	4.9	8.3		11.9
Net debt/equity (%)	48.5	70.3	56.3	68.8	58.2		49.8

Source: Company data, Verdhana estimates

Key data on Indika Energy

Income statement (USDmn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Revenue	3,027	2,447	2,088	2,167	2,360
Cost of goods sold	-2,475	-2,114	-1,715	-1,739	-1,829
Gross profit	552	333	373	428	531
SG&A	-240	-175	-137	-141	-152
Employee share expense
Operating profit	312	158	235	286	378
EBITDA	369	182	262	318	414
Depreciation	-19	-22	-26	-31	-34
Amortisation	-38	-1	-1	-1	-1
EBIT	312	158	235	286	378
Net interest expense	-65	-76	-89	-93	-95
Associates & JCEs	13	9	13	13	13
Other income	-21	-5	0	0	0
Earnings before tax	238	86	159	207	297
Income tax	-87	-53	-64	-83	-119
Net profit after tax	151	33	96	124	178
Minority interests	-31	-22	-25	-17	-13
Other items
Preferred dividends
Normalised NPAT	120	11	70	107	165
Extraordinary items
Reported NPAT	120	11	70	107	165
Dividends	-30	-21	-32	-49	-58
Transfer to reserves	90	-10	38	57	107
Valuations and ratios
Reported P/E (x)	4.0	41.0	6.3	4.2	2.7
Normalised P/E (x)	4.0	41.0	6.3	4.2	2.7
FD normalised P/E (x)	4.0	41.0	6.3	4.2	2.7
Dividend yield (%)	6.2	4.5	7.2	11.1	13.0
Price/cashflow (x)	–	2.5	4.0	3.4	2.4
Price/book (x)	0.4	0.4	0.4	0.3	0.3
EV/EBITDA (x)	3.3	6.3	4.8	4.2	3.2
EV/EBIT (x)	3.8	7.2	5.3	4.7	3.5
Gross margin (%)	18.2	13.6	17.9	19.7	22.5
EBITDA margin (%)	12.2	7.4	12.6	14.7	17.5
EBIT margin (%)	10.3	6.5	11.3	13.2	16.0
Net margin (%)	4.0	0.5	3.4	4.9	7.0
Effective tax rate (%)	36.7	61.6	40.0	40.0	40.0
Dividend payout (%)	25.1	186.4	45.7	46.2	35.0
ROE (%)	9.9	0.9	5.7	8.3	11.9
ROA (pretax %)	12.7	6.5	9.6	11.0	13.8
Growth (%)
Revenue	-30.2	-19.2	-14.7	3.8	8.9
EBITDA	-73.8	-50.8	44.5	21.4	29.8
Normalised EPS	-73.6	-90.6	521.3	52.2	54.1
Normalised FDEPS	-73.6	-90.6	521.3	52.2	54.1
Source: Company data, Verdhana estimates

Cashflow statement (USDmn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
EBITDA	369	182	262	318	414
Change in working capital	-696	114	13	-7	-11
Other operating cashflow	-117	-108	-165	-180	-214
Cashflow from operations	-445	187	110	132	189
Capital expenditure	-145	-160	-232	-181	-92
Free cashflow	-590	26	-122	-49	96
Reduction in investments	-23	-3	-1	-1	-1
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments	-29	38	0	0	0
CF after investing acts	-641	62	-123	-50	95
Cash dividends	-73	-30	-21	-32	-49
Equity issue
Debt issue	-25	-32	-2	0	0
Convertible debt issue
Others	34	6	23	14	9
CF from financial acts	-65	-56	1	-18	-41
Net cashflow	-706	6	-122	-68	54
Beginning cash	1,156	449	455	333	264
Ending cash	450	455	333	264	319
Ending net debt	623	585	706	774	720
Balance sheet (USDmn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash & equivalents	449	455	333	264	319
Marketable securities
Accounts receivable	344	370	305	316	344
Inventories	51	52	42	42	45
Other current assets	640	395	395	395	395
Total current assets	1,484	1,272	1,074	1,018	1,102
LT investments	265	268	269	271	272
Fixed assets	415	511	718	868	926
Goodwill	649	650	650	650	650
Other intangible assets	37	38	36	35	34
Other LT assets	264	224	224	224	224
Total assets	3,113	2,963	2,971	3,065	3,208
Short-term debt	429	142	142	142	142
Accounts payable	278	302	257	261	274
Other current liabilities	276	147	129	130	136
Total current liabilities	982	591	528	533	552
Long-term debt	643	898	896	896	896
Convertible debt
Other LT liabilities	111	118	118	118	118
Total liabilities	1,736	1,608	1,543	1,548	1,567
Minority interest	144	150	173	187	196
Preferred stock
Common stock	311	311	311	311	311
Retained earnings	935	881	930	1,005	1,121
Proposed dividends
Other equity and reserves	-12	14	14	14	14
Total shareholders' equity	1,233	1,206	1,255	1,330	1,445
Total equity & liabilities	3,113	2,963	2,971	3,066	3,208
Liquidity (x)
Current ratio	1.51	2.15	2.03	1.91	2.00
Interest cover	4.8	2.1	2.6	3.1	4.0
Leverage
Net debt/EBITDA (x)	1.69	3.22	2.69	2.43	1.74
Net debt/equity (%)	50.5	48.5	56.3	58.2	49.8
Per share
Reported EPS (USD)	2.30c	0.22c	1.35c	2.05c	3.16c
Norm EPS (USD)	2.30c	0.22c	1.35c	2.05c	3.16c
FD norm EPS (USD)	2.30c	0.22c	1.35c	2.05c	3.16c
BVPS (USD)	0.24	0.23	0.24	0.26	0.28
DPS (USD)	0.01	0.00	0.01	0.01	0.01
Activity (days)
Days receivable	53.1	53.4	59.0	52.3	51.1
Days inventory	8.3	8.9	9.9	8.8	8.7
Days payable	45.9	50.2	59.5	54.4	53.4
Cash cycle	15.5	12.1	9.4	6.7	6.3
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 IDR2,450/sh is derived via a sum-of-the-parts (SOTP) methodology with 14% 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 45% of our SOTP valuation. The benchmark index is the JCI index.

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: INDY – 1Q25 results recap

INDY 1Q25 results snapshot
in USDmn	1Q24	4Q24	1Q25	QoQ	YoY	% Ve	% to cons
Revenue	567	663	490	-26%	-14%	22%	21%
Gross Profit	94	63	64	1%	-32%	21%	19%
Operating Profit	45	22	27	23%	-41%	21%	16%
Net Income	20	(11)	3	N/A	-85%	9%	7%

GPM	16%	10%	13%
OPM	8%	3%	5%
NPM	4%	-2%	1%

INDY operational
in USDmn	1Q24	4Q24	1Q25	QoQ	YoY	% Ve
Production vol (mt)	7.0	7.3	7.4	13%	7%	24%
Sales vol (mt)	7.2	7.9	7.3	6%	1%	24%
ASP (US$/t)	62.9	56.1	54.8	-1%	-19%	99%
Stripping ratio (x)	5.5	5.5	5.0	2%	4%	91%

Source: Company data, Verdhana research

Fig. 2: INDY key performance charts – quarterly trends

Source: Company data, Verdhana research

Fig. 3: Assumption changes

Source: Company data, Verdhana estimates

Fig. 4: SOTP valuation

SOTP by Projects	EV (USD mn)	Valuation Methodology	INDY FY25F NPAT (USDmn)	Implied valuation at TP	Implied Valuation at TP Method	Per share
Current business
Kideco and other supporting business	842	DCF - WACC (13.7%)	70	12.0	PE FY25F (x)	2,585
Nusantara resources (Awak Mas)	689	DCF - WACC (13.7%)		293.4	EV/Resources (USD/oz)	2,115

Total EV	1,531					4,700
Net Debt/(Cash) - FY24	585					1,795
Minority interests - FY24	150					460
Total Net Asset Value (NAV)	796					2,445
Per share (IDR/share)						2,450

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 2,000	IDR 2,450
Closing price 2 May 2025	IDR 1,410
Implied upside	+73.8%
Market Cap (USD mn)	447.1
ADT (USD mn)	1.2

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	447.1
Free float (%)	29.1
3-mth ADT (USDmn)	1.2

(%)	1M	3M	12M
Absolute (IDR)	20.0	-15.8	-0.7
Absolute (USD)	20.9	-16.5	-2.2
Rel to Jakarta Stock Exchange Composite Index	15.3	-11.7	3.5

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

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

Margin improvement due to lower stripping ratio

Key data on Indika Energy

Fig. 1: INDY – 1Q25 results recap

Fig. 2: INDY key performance charts – quarterly trends

Fig. 3: Assumption changes

Fig. 4: SOTP valuation

Fig. 5: Profitability trends (GPM, NPM, ROE)

Fig. 6: NPAT and growth

Rating Table

Relative performance chart

Research Analysts

yudi Administrator

Harum Energy HRUM IJ -Buy- Tsingshan A game-changing partner for HRUM

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

Indonesia Coal - New Pricing Regulation: Fair but concerning

Indonesia Commodity - Royalty scheme: Minor changes for non-coal resources

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

Ancara Logistics Indonesia (ALII IJ) (Buy) - High growth and margin expansion with KBN

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

Fig. 1: INDY – 1Q25 results recap

Fig. 2: INDY key performance charts – quarterly trends

Fig. 3: Assumption changes

Fig. 4: SOTP valuation

Fig. 5: Profitability trends (GPM, NPM, ROE)

Fig. 6: NPAT and growth

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