Indo Tambangraya (ITMG IJ)
FY24 outlook: Higher volumes growth to partly cushion against potential ASP correction
- ITMG indicated more aggressive FY24 production and sales growth plans (+15-20% yoy), driven by the contribution from its newer mines.
- We raise our FY24F net profit estimate by 31%, as we adjust our sales volume assumptions, in-line with the mgmt’s latest guidance.
- Maintain Buy with a slightly higher TP of Rp28,800 on ITMG’s sustainable FCF generation and solid dividends (current yield of 23.4%).
More aggressive volume growth in FY24
ITMG indicated plans to grow FY24 production and sales volume to 19.5-20.2Mt and 24.9-25.6Mt (+15-20% and +10-22% yoy respectively), driven by the expected rising contribution from its Bharinto and GPK and TIS mines (combined 2.4Mt increase, which will more than offset the decline in Jorong and flat production in Indominco) and sales from third parties (trading) of 5-6Mt (25-50% yoy). While the higher production from Bharinto may drive higher production costs (due to longer hauling distance), this may be offset by the potentially lower GPK mine costs (lower SR and lower royalty rate).
Higher volumes at fixed price may indicate firm demand
ITMG further indicated that of its FY24 coal sales target, as of Feb24, 55% is unsold, with the remainder sold at fixed prices (39% of volume) and 6% on an indexed basis. We note that the portion of volume that is already sold at fixed prices (39%) is higher relative to the portion in the past three years (20-31%), which may indicate interest from buyers to lock in volumes and prices. Meanwhile, as ITMG also kept a bigger portion of volumes still uncommitted/ unsold as of Feb24, this may offer ASP upside under the scenario of higher demand.
We raise our FY24-25F to account for higher volumes
We raise our FY24F net profit estimate by 31%, as we adjust our sales volume assumptions, in-line with the mgmt’s latest guidance, and introduced a FY26F net profit est. We maintain our ASP assumptions (FY24F/25F/26F:US$87/ $82/$85/t vs. FY23’s US$113/t), as we expect thermal coal price normalization to continue amid higher supply growth vs. demand.
Maintain Buy rating with slightly higher TP of Rp28,800
We expect ITMG to sustain its FCF generation and dividends distribution (current yield of 23.4%) despite the current coal price correction cycle. We raise our DCF-based TP to Rp28,800 to reflect our higher estimates based on a LT coal price of US$90/t and WACC of 12.5%. The key risk to our view is weaker coal prices.
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