Coal: Steady Dividend Stream to Cushion Normalizing Coal Price; Cut Sector Rating to Neutral (NEUTRAL)

Stock Code	Last Price	Change	Change %
DSSA	44,950	2,700	6.39%
DCII	169,200	2,250	1.35%
MFIN	5,400	800	17.39%
RDTX	12,450	700	5.96%
PTRO	2,910	460	18.78%
MKPI	25,200	450	1.82%
CUAN	7,325	350	5.02%
RATU	5,700	300	5.56%

Coal

Steady Dividend Stream to Cushion Normalizing Coal Price; Cut Sector Rating to Neutral

We continue to expect coal price to normalize and forecast Newcastle price at US$110/t in FY25, driven by growth in Indonesia’s export.
Amid the projected decline in coal prices, we forecast earnings for Indonesian coal miners to fall by 25-33% in FY25.
We cut the sector’s rating to Neutral; despite declining earnings, the sector continues to offer an attractive dividend yield (FY25 avg. 11%).

Price outlook: normalization to continue; risks skew to the downside

Our expectation for a seasonal price strength in 4Q24-1Q25 failed to materialize despite record-high import volumes from China and in-line production growth from Indonesia in FY24. We see high inventory levels in China amid rising domestic production as the main culprit behind soft prices in 4Q24. Going into FY25, we continue to see scenario of coal price normalization and expect Newcastle price to average at US$110/t (FY24: US$135.7/t), driven by supply growth from Indonesia. Amid potential for China’s production to continue accelerate and risk of Russia supply re-entering the market, we now see price downside risk and forecast LT price of US$90/t (vs. US$100/t previously).

Firm import demand, but China’s high inventory levels may cap price

Going into FY25, we expect a slower growth for China’s import amid acceleration in its domestic production growth in 4Q24 which signaled a less tight control on production and persistently total high inventory levels. Meanwhile, we forecast India’s import to grow at a similar rate to FY24 growth of 5% yoy. On the supply side, Indonesia has remained the main supplier into the seaborne market with export growth of 8.4% yoy, with Australia also showing recovering production. We forecast Indonesia’s production to continue growing at a similar rate of 8.1% yoy in FY25, with flattish production profile for other exporting countries.

Earnings outlook: Falling earnings in FY25

Amid the projected decline in coal prices, we forecast earnings for Indonesian coal miners under our coverage to fall by 25-33% in FY25. Within our coverage, AADI may enjoy earnings upside if its royalty is cut (24-27% upside in EPS if royalty rate is lowered by 8-9ppt), but this awaits the approval of the proposal.

Cut to Neutral: falling earnings, but with steady dividend and attractive yield

We lowered our sector rating to Neutral, amid our view on price downside risk from higher China production and high inventory level. Despite declining earnings, the coal stocks continue to offer attractive dividend yield for investors, ranging at 8-14%. Our preference in the sectors are: UNTR (Buy, TP Rp31,000), AADI (Initiate with Buy, TP of Rp9,850) > ADRO (Buy, TP Rp2,630 > ITMG (Buy, TP Rp27,300) > PTBA (Buy, TP Rp3,100). We like UNTR as it offers a more defensive earnings profile from the mining contracting business, with an attractive dividend yield of 10.8%.

… Read More 20250313 Coal