The Indonesian government recently announced a proposal to revamp the royalty schemes for natural resources. We conduct an analysis of the listed companies based on: 1) decrease in coal royalties and 2) increase in mineral royalties.IUPK (Special Mining Business License)

Royalties for coal IUPK license holders to be decreased from 28% to 19%

At the current HBA (national coal benchmark price) of USD128/t, the proposal states that the existing royalties of 28% for IUPK license holders will be reduced to 19%. This, we believe, will significantly benefit the IUPK holders, namely Indika Energy (INDY IJ, Buy), and Adaro Andalan Indonesia (AADI IJ, Buy). Thus, we estimate a +364%/+28% increase in FY25F net earnings for INDY/AADI, due to a decrease in the royalties.

Mineral royalties experience a significant increase

In contrast to the coal sector, the government plans to increase the royalties of minerals such as nickel and nickel products, gold, copper, and more. Each product will experience varying degrees of increase in their royalties, depending on their respective HMA (national minerals benchmark price) prices. Based on our analysis of the listed companies in the nickel industry, we anticipate a 4% drop in FY25F EBITDA margins, with varying impact on NPAT and P/E due to the difference in the composition of various products such as being Nickel Ore, NPI, Ferronickel, or Nickel Matte. .

Stocks for action

We remain cautious on the timeline and implementation of the proposal. Nonetheless, we prefer AADI and INDY (both Buy) as they are likely to be the beneficiaries of the potential decline in royalties. AADI offers a likely attractive FY25F dividend yield of 10.7% and a tailwind from the inclusion of the potential stock index flow. Further, we like INDY for its development of gold mines, which we believe will start contributing from 2026F.

Fig. 2: Coal royalty scenario P/E impact in FY25E

Fig. 3: Coal royalty scenario NPAT impact in FY25E

Fig. 4: Minerals royalty scenario P/E impact in FY25E

Fig. 5: Minerals royalty scenario NPAT impact in FY25E

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. 

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

Edward Prima (edward.prima@verdhana.id)