Document 1020406031

23 July 2013 Asia Pacific/Indonesia Equity Research Diversified Metals & Mining
Indonesia Coal Mining Sector

Research Analysts Ami Tantri 62 21 2553 7976 ami.tantri@credit-suisse.com Paworamon (Poom) Suvarnatemee, CFA 66 2 614 6210 paworamon.suvarnatemee@credit-suisse.com Contribution by: Anindito Widyanarendra
SECTOR REVIEW
Streak of misfortunes
Figure 1: Bukit Asam to grow faster than Indonesias coal output
500 450 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f Export by Major Domestic by Minor Export by Minor Bukit Asam (RHS) Domestic by Major 15 10 5 35 30 25 20
Source: Company data, Credit Suisse estimates
The coal sector faces a structural issue. The coal mining sector has been under pressure in the deteriorating coal price environment. The sector has a structural issue with oversupply situation, therefore, we do not expect coal price to recover soon. We reflected this on our coal price assumption of US$86/tonne this year and US$91/tonne in 2014, with a long-term coal price assumption of US$100/tonne. But all is not lost; Bukit Asam is the stand out top pick. Despite the structural problem of the sector, there is one stock which we preferBukit Asam (PTBA). The company is improving its railway transportation capacity, which had constrained growth. Bukit Asams coal is of high grade with large reserves for over 100 years. It is amongst the lowest cost producers and enjoys a net cash position with no debt. We expect production to grow at 22% and 14% and profits to grow at 21% and 51% in FY14 and FY15, respectively. Trading on lowest P/E since 2008 crisis. The stock trades on a P/E of 10.0x for 2013 and 8.3x for 2014the lowest since the 2008 crisis. Bukit Asam has always traded at a premium to its peers. If our growth numbers are correct, the stock is trading at FY15 P/E of 5.7x. While FY15 is still far off, it highlights the disconnect between growth and valuation for this stock. We have an OUTPERFORM rating on the stock with a revised target price of Rp17,000 (down from Rp18,000), based on a P/E target of 12.5x, or 25% higher than the sector average of 10x.
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23 July 2013
Focus charts and table

Figure 2: Underperforming on flat coal price
200% 210 190
150% 170 150
Figure 3: P/E relative to JCIUnderperforming

x
0.8 200 180
0.6
0.4 0.2
160
140
US$/tonne
(x)
130 50% 110 90
100 (0.2) 80 60
0%
70
-50% Jan-08 50 Jan-09 Coal co Jan-10 Jan-11 Jan-12 Jan-13 Coal price (RHS)
(0.4)
(0.6) Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Indo Coal PE rel. To JCI Coal price (RHS)
40
20 -
Source: Bloomberg
Source: Bloomberg, Credit Suisse research
Figure 4: Indonesias coal output

Million tonnes
500 450 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f Export by Major Export by Minor Domestic by Major Domestic by Minor Bukit Asam (RHS) 15 35 30
Figure 5: Coal price assumptions

US$/tonne
110
105 100 105 102
100
95 91 87 80 90 90 90 95 91
100
25
20
95
90 85
85
86
10
5 -
80
75 70
2013F
2014F
2015F
2016F
1Q13F
2Q13F
3Q13F
4Q13F
1Q14F
2Q14F
3Q14F
4Q14F
2017F
2012
Source: Credit Suisse estimates
Figure 6: Valuation comparison

Price Ticker Coal ADRO.JK PTBA.JK ITMG.JK HRUM.JK N O N N 700 11,500 26,000 2,800 900 17,000 26,000 3,500 29% 48% 0% 25% 2,226 2,634 2,920 752 Rtg (local) TP Upside Mkt Cap (local) % (US$ mn) P/E (x) 13E 10.6 7.4 10.1 13.0 13.0 14E 8.5 6.5 8.3 10.4 7.7 EV/EBITDA (x) 13E 5.9 4.4 6.1 7.1 5.6 14E 4.8 4.2 4.7 5.6 3.7 EPS growth 13E -30% -22% -9% -48% -56% 14E 25% 14% 21% 25% 68% Div. Yield 13E 5% 4% 6% 7% 4% 14E 7% 5% 7% 8% 6% 3.4 1.2 6.6 2.8 EV/reserve
LT
US$/tonne
100%
120
23 July 2013
Streak of misfortunes
Indonesian coal companies plan to grow output
Despite the decline in coal price, we have seen that Indonesias coal output has continued to grow. Export reached its peak in 4Q12 and had a strong pick up in April 2013. Large coal companies have the capability to move their operations to lower strip ratio areas to reduce cost. Being amongst the lowest cost coal producers, they were still making cash margin of over US$20/tonne at low coal price environment. Large coal companies remain profitable and plan to grow their output.
Coal surplus continues

We see that the oversupply situation remains and the market would be in surplus at least until next year. Demand, however, is not really much of an issue. The growth in demand is still expected to come from China and India. As long as the seaborne coal price is lower than the domestic price, China would continue to import coal. India has structural problemsinfrastructure issues, power pricing and worsened by the weakening Indian rupee. On the positive side, the Government of India intends to bail out the power sector, allowing power plants to pass through the imported coal cost and making power plant projects renegotiate their PPAs, so they become feasible. We reflect this condition in our coal price assumption of US$86/tonne for 2013 and US$91/tonne for 2014, with a longterm coal price assumption of US$100/tonne. (Please see Commodities Forecast Update: The Return of Fundamentals, 25 June 2013) We assume coal price of $86/t for 2013 and $91/t for 2014
Increasing regulatory risks

If China bans import of low quality coal it would hurt Indonesia as China accounts for 30% of total exports which consist mostly of low-grade coal. Indonesian coal is normally used for blending, considering its low sulphur and ash levels. Indonesias MoF is also considering increasing royalty for IUP holders to 10-13.5%, from 37% currently. These would hurt small inefficient coal companies, which we estimate could potentially take out around 100 mn tonnes (about 12%) from the seaborne coal market. This would be positive for the coal price in general, except for the low-grade coal, whose price could be under pressure. Increasing regulatory risk from potential China ban and royalty rate increase for IUP holders.
Stock pick: We prefer Bukit Asam

The coal mining and the mining contracting stocks have been underperforming the JCI following the decline in coal price. The underperformance has continued even as the coal price has been flat. We believe that the coal price has reached the bottom, but it may stay at this level for a while. In the coal sector, we prefer Bukit Asam (PTBA, TP: Rp17,000) considering its: (1) low-cost structure, (2) volume growth potential with the improvement of the railway transportation, (3) net cash position, (4) high-grade coal and (5) large reserves for over 100 years. Our second option is Indotambang (ITMG, TP: Rp26,000), with a NEUTRAL rating. We are also NEUTRAL on Adaro (ADRO, TP: Rp900) and Harum (HRUM, TP: Rp3,500). Bukit Asam is our top pick in the coal sector
Figure 7: Regional comparison

Price Company Indonesia coal PT Adaro Energy Tbk PT Tambang Batubara Bukit Asam Tbk PT Indo Tambangraya Megah PT Harum Energy Tbk Regional coal China Shenhua Energy Company Limited Yanzhou Coal Mining Co. China Coal Energy Co. BHP Billiton Rio Tinto Whitehaven Coal Anglo American Plc ADRO.JK PTBA.JK ITMG.JK HRUM.JK 1088.HK 1171.HK 1898.HK BHP.AX RIO.AX WHC.AX AAL.L O U N N O O N 22.35 5.59 4.07 34.12 56.55 2.19 1379 34.90 6.60 5.90 34.00 68.00 3.30 1,600 56% 18% 45% 0% 20% 51% 16% 57,298 3,544 6,956 161,210 85,626 2,068 29,353 7.8 8.4 8.1 13.1 11.5 (38.2) 14.9 6.9 6.6 7.3 14.4 13.0 (868.3) 14.9 4.2 5.2 5.7 6.4 5.7 306.8 5.1 3.7 4.1 4.8 6.8 6.2 20.3 5.2 -8% -58% -40% -25% -10% -157% 222% 13% 26% 11% -9% -12% 96% 0% 4% 4% 3% 4% 3% 0% 4% 5% 5% 3% 4% 4% 0% 4% 6.94 75.37 42.70 38.94 32.51 15.10 29.43 no debt 75.30 45.03 40.05 34.44 28.54 35.43 N N 26,000 2,800 26,000 3,500 0% 25% 2,920 752 13.0 13.0 8.5 10.4 7.7 7.6 7.1 5.6 5.2 5.6 3.7 4.5 -48% -56% -36% 25% 68% 14% 7% 4% 4% 8% 6% 4% no debt no debt 43.13 no debt no debt 42.19 N O 700 11,500 900 17,000 29% 48% 2,226 2,634 Ticker Rtg (local) TP (local) Upside Mkt Cap PE (x) 13E 10.6 7.4 10.1 14E 8.5 6.5 8.3 EV/EBITDA (x) 13E 5.9 4.4 6.1 14E 4.8 4.2 4.7 EPS growth 13E -30% -22% -9% 14E 25% 14% 21% Div. Yield 13E 5% 4% 6% 14E 7% 5% 7% N.Debt/Equity (%) 13E 13.76 52.76 no debt 14E 9.68 37.10 no debt % (US$ mn)
23 July 2013
23 July 2013
Indonesian coal companies plan to grow output

Still growing
Despite the weak coal price in 2012, Indonesias coal exports were higher than expected, and reached their all-time high of over 111 mn tonnes in 4Q12 which is normally the lowest quarter. In 2012, Indonesia exported 383 mn tonnes of coal, higher than our estimate of 343 mn tonnes. The export volume in 2M13 was down compared to 4Q12, but we saw a strong pick up in March. Mining companies look to the long term and are committed with their long-term projects, although they may hold up capex this year. This is confirmed from a major mining consultant in the country, who has said that major mining companies remain committed with their projects. Large coal mining companies with developed infrastructure are still positive in increasing their volumes this year. Coal companies under our coverage have stated that they would have higher coal output this year, despite the decline in coal price. Small coal mining companies with limited infrastructure and insufficient exploration programmes tend to shut down operations. We estimate that these small companies account for around 18% of total Indonesian coal output. The rest of the Indonesian coal producers should still be profitable at a coal price of US$80/t. In order to keep increasing production, coal mining companies are moving their operations to areas with lower strip ratio to reduce the production cost. This can only be done by those which have undergone exploration work to indicate areas with certain strip ratios. Indonesias coal mining companies are amongst the lowest cost producers, therefore they can afford to sell at lower coal prices. By operating in lower strip ratio areas, they are able to preserve margin and increase production. We expect Indonesias coal output to grow by 7% this year and 4% next year.
Figure 8: Indonesias coal export, recovery in March 13
Million tonnes
50 45 40 35 30 25 20 15 10 5 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Coal export reached its peak in 4Q12
Mining companies invest for long-term and remain committed with their projects....but may witness some slowdown in the short-term
Lowering cost by operating in areas with lower strip ratio
Figure 9: Indonesias coal output

Million tonnes
500 450 400 350
300
250 200 150 100 50
0
2007 2008 Export by Major 2009 2010 2011 2012 2013f 2014f 2015f 2016f Export by Minor Domestic by Major Domestic by Minor
Source: Bank Indonesia; CS comment: Data include lignite
Source: Custom data, Credit Suisse estimates
23 July 2013
Growing domestic consumption

More than 80% of Indonesias coal output is exported. Indonesias coal consumption is primarily for power plants, accounting for 4750% of total coal consumption. This number is expected to increase with the completion of coal-fired power plants built by PLN, the state owned power companies, IPPs and some large companies, including coal mining companies, who are also building their own power plants for internal use in order to reduce costs. There has been increasing consumption by the methalurgy sector, which primarily consists of some mining companies who are converting from oil to coal to reduce costs. This sector accounts for about 10% of total domestic coal consumption. Coal consumption by cement companies have not increased much as some are converting for using alternative fuel in raising coal price, currently accounting for around 7%. Other industry sectors are also converting to coal, such as pulp and paper companies in Sumatra whose locations are close to the coal mines, and fertiliser companies.
Figure 10: Domestic coal consumption
Million tonnes
90 80 70 60 50 40 30 20
Domestic coal consumption to increase slowly, mostly to power plants
Figure 11: Indonesias coal export destination in 2012

Others 4% India 25%
Viet Nam 0% Malaysia 4% Philippines 3%

Thailand 4%
Japan 9% Hong Kong 3% South Korea 10%
10
0 1998 2000 Power plants 2002 2004 2006 2008 2010 2012e Cement Metallurgy, fertiliser, pulp/paper, others
Taiwan 8%
China 30%
Source: MEMR, Credit Suisse estimates
Source: Bank Indonesia
Mining companies get financing from foreign banks

With the decline in commodity prices, there has been concerns about the banks giving loans to the mining companies, whether it would affect the performing loans and loan growth of the local banks. Due to the size of the investment, most of the loans to mining companies come from foreign banks, syndicated loans or bonds. Some local banks have exposure to the mining sector, which could be in the form of working capital loans or as part of the syndication, accounting for less than 7% of total loans. BNI (BBNI.JK) and Bank Mandiri (BMRI.JK) are the most active in providing loans to the mining sector, with exposure of around 6% of their total lending. However, the NPL level, although small, has increased to 1.2%, from around 0.3% in December 2011 and 0.4% in December 2010, but lower than the 10-year average of 4%. Local banks have small exposure to the mining sector
23 July 2013
Figure 12: Mining sector lending in comparison to total loans

8% 7% 6% 16% 14% 12%
5%
4% 3% 2% 1% 0% 2003 BCA 2004 2005 B Mandiri 2006 2007 BNI 2008 BRI 2009 2010 2011 2012
10%
8% 6% 4% 2% 0%
B Danamon
NPL (RHS)
Source: Bank Indonesia, Credit Suisse estimates
Figure 13: Mining companies borrowing

Lenders/borrowing Adaro ABM Antam Bukit Asam Delta Dunia Indika United Tractors Syndicated loans of foreign banks; senior notes Bonds, Sukuk, foreign banks, local bank is Bank Mandiri Mostly from foreign banks and bonds. Local bank is BRI Working capital loan from BNI, Bank Mandiri, and Bank Permata Senior notes. Mostly foreign banks Mostly foreign banks; Senior notes. Local banks include BII, B. Permata, Danamon, BTN, BPD West Java Mostly foreign banks and syndicated loans of foreign banks. Local bank: Bank Ekonomi Raharja
Source: Company data, Credit Suisse
Coal mining companies tend to be in a net cash position, except those with aggressive expansion projects, including acquisitions of new areas to add reserves. They have indicated increases in volume this year, despite a low coal price environment, as they move their operations to lower strip ratio areas, in order to reduce costs.
Figure 14: Net debt to equity
x Code Adaro Harum Energy Indika Energy Indotambang Bukit Asam ADRO.JK HRUM.JK INDY.JK ITMG.JK PTBA.JK 2010 0.5 no debt 0.5 no debt no debt 2011 0.6 no debt 0.7 no debt no debt 2012 0.6 no debt 0.7 no debt no debt 2013 0.5 no debt 0.5 no debt no debt 2014 0.3 no debt 0.3 no debt no debt
23 July 2013
Indonesian coal companies remain profitable

At a coal price of US$90/t, Indonesian coal companies are able to sell at around US$60 70/t depending on the coal grade, and still enjoy US$1224/t cash margin. As they are still in the money, they would continue to grow their volume. In the difficult market condition, we believe that the large and more developed coal mining companies have better bargaining power than the smaller ones, because they have more established markets and better relationships with their customers. There has been strong demand for lowgrade coal with low sulphur content, normally used for blending. Therefore, Adaro, seems to receive a relatively higher price than the high-grade producers such as Bukit Asam and Harum Energy. As the coal price continues to decline reaching US$76/tonne due to seasonality (soft demand in 3Q) and weakening in AUD, the coal companies under our coverage remain profitable considering their low cost structure.
Figure 15: Coal cash production cost
US$/tonne Company 4000-4700 Est. Price at US$76/t Newcastle benchmark Adaro Bukit Asam Harum Indotambang Kideco (INDY) Source: Company data, Credit Suisse estimates 4856 38.8 n.a. n.a. n.a. n.a. Calorific value (kcal/kg) 4700-5300 5663 38.8 n.a. n.a. n.a. 33.4 5000-6000 6072 n.a. 45.5 n.a. 45.0 n.a. 6000-6500 7278 n.a. 45.5 57.1 54.3 n.a. >6500 >78 n.a. 45.5 n.a. 63.5 n.a.
Coal companies remain profitable at low coal price environment
Indonesian coal companies remain profitable even in a low coal price environment
Assuming the coal price does not recover and stay as it is at US$76/tonne, coal companies, which are unable to maintain their current low cost as the reserves may have depleted in the areas with a low strip ratio, could potentially reduce their output to preserve margins, such as Harum and Kideco (under Indika).
Figure 16: Sensitivity if benchmark price stays at US$76/tonne
Change (%) ASP Adaro ($ mn) Bukit Asam (Rp bn) Harum ($ mn) Indotambang ($ mn) Indika ($ mn) -16% -16% -16% -13% -16% Net Income -78% -48% -104% -75% -77% -78% -47% -103% -23% -100% 62 69 71 80 58 Base TP ASP (US$/t) Net Income 345 3,193 97 282 98 TP (Rp) 900 17,000 3,500 26,000 900 If coal price stays at $76/t ASP 52 58 59 69 49 Net Income 75 1,668 (4) 72 23 TP (Rp) 200 9,000 -100 20,000 0
23 July 2013
Coal surplus continues

Expecting coal surplus to continue
We have become more bearish on the thermal coal outlook and expect the underperformance to continue. The surplus of supply is likely to remain for a while. We estimate 22 mn tonnes of oversupply this year, even after considering Colombian production disruptions by floods. The oversupply will decline slightly in 2014, and fall more in 2015. Coal price is likely to remain low before surplus of supply diminishes at least until 2016. Coal producers have shown little discipline in reducing production to support price. Miners have been willing to take thin or even negative margins due to various reasons, such as: (1) reducing mine operations can raise problems; (2) there are practical and political difficulties of laying-off employees; (3) reducing costs in order to maximise output; (4) setting up fixed contracts tonnes; forward hedging, take or pay agreements. Weakening IDR and AUD reduce the cost of the Indonesian and Australian coal producers. Indonesian coal mining companies chose to reduce the strip ratio in order to reduce cost and increase their volumes. Those with a high-cost nature, including those operating in high strip ratio areas, at a long distance from the ports, and having no proper infrastructure to bring the coal output to the mine, have preferred to reduce production. These are normally small coal companies. We estimate these high-cost producers to account for 18 20% of Indonesia total coal production. The large coal companies have indicated their intention to increase their volumes.
Figure 17: Seaborne coal exporters
Million tonnes
1,000 900 800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012e 2013f 2014f 2015f 2016f Indonesia Australia Russia South Africa Colombia North America RoW
Coal price is likely to remain low before surplus of supply diminishes at least until 2016
Large coal companies remain in the money and intent to increase their volume
Figure 18: Seaborne coal importers

Million tonnes
1,000
900
800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 India 2011 2012e 2013f 2014f 2015f 2016f Europe RoW China Japan, Korea, Taiwan
Demand should remain firm, although we also see the recent demand strength has been supply driven from cheap seaborne coal prices. China and India, the two great hopes of seaborne coal miners, had import growth of 31% and 24%, respectively in 2012. European coal imports grew 12% last year. We expect Chinas imports to continue to grow but at a slower pace. Chinas position of having a domestic alternative makes it an extremely price sensitive importer and sets the arbitrage into the country as a medium-term cap on prices. This is something we continue to see as a bearish structural influence on thermal coal prices. India remains a structural importer. Difficulties in getting environmental clearances have hindered coal production to expand and rail infrastructure to be built to transport the coal. The clarification of the tax issue removes downside risks on Indian imports this year,
23 July 2013
but there are other obstacles such as the timing of reform in the electricity distribution and pricing mechanisms, and the weakening Indian rupee against the USD. On the positive side, the Government of India intends to bail out the power sector, allowing power plants to pass through the imported coal cost, and making power plant projects to renegotiate their PPAs, thus turning them feasible. We have reflected the coal market condition in our coal price assumption of US$86/tonne in 2013 and US$91/tonne in 2014, with long-term coal price assumption of US$100/tonne.
Figure 19: Thermal coal (Newcastle) price assumptions
US$/tonne 2012A New Old Change Source: Credit Suisse estimates 95 95 0% 2013F 86 90 -5% 2014F 91 93 -2% 2015F 100 100 0% 2016F 102 102 0% 2017F 105 105 0% Long-term 100 100 0%
Figure 20: Seaborne coal surplus

Million tonnes
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0
Figure 21: Coal price assumptions

US$/tonne
110
105 100 105 102
100
95 91 87 80 90 90 90 95 91
100
95
90 85
85
86
80
75 70
2013F
2014F
2015F
2016F
1Q13F
2Q13F
3Q13F
4Q13F
1Q14F
2Q14F
3Q14F
4Q14F
2017F
2012
0.0 2012e 2013f 2014f 2015f 2016f
The ban from China on low-quality coal import could potentially take out around 100 140 mn tonnes of coal export from Indonesia, accounting for around 12% of seaborne coal volume. However, we do not expect that it would affect the benchmark coal price, but it would give more pressure on the low-grade coal price. The other market absorbing lowgrade coal is India, which is price sensitive especially as rupee continues to be weak. The low-grade coal for Indonesia is mostly used for blending purpose, although some new power plants are able to use such low-grade coal.
Indonesia coal price could be under pressure
LT
10
23 July 2013
Increasing regulatory risks

Risk of China to ban import of low-quality coal
There have been talks that China would restrict low-quality thermal coal imports (heat content lower than 4500 kcal, ash content higher than 25%, and sulphur content higher than 1%). This could partly affect imports from Indonesia, accounting for 43% of total imports in 1Q13. Indonesias coal exports to China have been growing rapidly, now accounting for 30% of total export. In 2012, the coal export to China from Indonesia was 122mn tonnes, mostly low-grade coal. Indonesian coal has low sulphur and low ash content, used for blending in general. This is the whole point why Indonesia could grow its coal export significantly. It is not clear about when this import ban regulation would be implemented.
Figure 22: Indonesias coal export destinations
Million tonnes
450 400 350
There have been talks that China would restrict lowquality thermal coal imports
Figure 23: Increasing coal exports to China

Million tonnes
140 120 100 80 60 40 20 35% 30% 25% 20% 15% 10% 5% 0% 2007 2008 2009 2010 2011 2012 Export to China (mn t) Portion export to China (%)
300
250 200 150 100 50 0 2007 Japan India 2008 HK Thailand 2009 S.Korea Philippines 2010 Taiwan Malaysia 2011 China Others 2012
Source: CEIC
Source: CEIC
The coal companies under coverage have exposure to Chinese market between 630%. The coal has low sulphur content and low ash content. The calorific value varies depending on the company. These companies are unlikely to get directly affected considering their low sulphur and ash contents. Who would likely be affected could be other small coal mining companies. Adaros calorific value is around 4000500kcal/kg and the company claims that demand for low-grade coal has been very strong, especially from China. Their export to China accounts for around 6% of total volume or less than 3 mtpa. Adaros coal is envirocoal with very low sulphur content, normally used for blending. Two possibilities for Adaro: increasing demand for their envirocoal used for blending to reduce the sulphur content or the price could be under pressure considering the grade. The company sells 23% of its volume to domestic market. The largest export market is Spain, India, and Japan. However, Adaro would not be able to develop its new mining areas with lower-grade coal. Bukit Asams (PTBA) exports to China accounts for 11% of total volume (or about 2 mtpa), mostly from its subdiary in Kalimantan, IPC (International Prima Coal). IPC has an annual output of only 1 mt of < 4500 kcal/kg (gar) coal or about 0.5% of total Bukit Asams volume. The company claims that it could divert the coal for domestic market, if they were to lose the sales to China, the average price would increase and profitability would improve, despite the decline in volume. Bukit Asam, Indotambang, and Harum have high-grade coal
11
23 July 2013
Harum Energy (HRUM)s coal has an average calorific value of 5500kcal/kg after the blending. Some of their coal has high sulphur of above 1%. The potential ban on lowquality coal would be beneficial for them as the price for higher-grade coal would increase. Harum exports around 30% of total volume to China. Indotambang (ITMG) has high-grade coal with an average calorific value of 6200kcal/kg. In 2012, ITMG sold 26% of its volume to China and the proportion rose to 31% in 1Q13. However, ITMG exports high-grade coal with CV of around 6000kcal/kg to China while its lower CV coal is sold to ASEAN countries and to the domestic market in Indonesia.
Figure 24: Proportion of exports to China
Adaro Average grade Sales portion to China FY12 Export volume to China Sulphur content Ash content Source: Company data kcal/kg % mt % % 40005000 6% 2.9 0.10.4 1.92.9 Bukit Asam 6100 11% 1.7 0.51.2 4.08.0 Harum 5500 30% 3.7 <1 <9 Indika (Kideco) 46504700 23% 7.9 0.1 2.53.5 Indotambang 53007300 26% 7.0 0.21.6 2.84.4
If demand for high-grade coal were to increase, it would be beneficiary for Indotambang, Harum Energy, and Bukit Asam. The price for low-grade coal could be under pressure. However, considering that Adaro and Kideco have very low sulphur and ash contents, there could also be more demand for this type of coal for blending, in order to reduce the sulphur and ash contents.
Ministry of Finance (MoF) proposes to increase royalty rate to 13.5% for IUP
There was a talk that the MoF proposed to increase royalty rate to 1013.5% for IUP license from the current rate of 37% depending on the calorific value. It was confirmed by Chatib Basri, Minister of Finance, as quoted by Bloomberg that MoF to propose royalty rate increase for IUP (mining permit) to 13.5% in 2014. There are two types of coal mining license in Indonesia: CCOW (coal contract of work) and IUP. CCOW is the older generation of mining license issued by the government, while IUP is the newer generation of mining license. CCOW holders would not be affected with this issue. However, the MoF has to discuss first with Ministry of Energy and Mineral Resources, before the proposal can be passed. We believe this proposal would not be passed in the near future as there will be strong refusal from the coal industry. Further, it involves many political interests, as Indonesia is preparing to conduct its general election next year. With total exports of 342 mn tonnes in 2012, Indonesia is the largest exporter of coal for Seaborne market and accounts for 40% of global coal supply. At the current coal price of around US$81/tonne, we believe some of the Indonesian coal producers are already out of the money, especially the typical small players which by nature have the higher costs compared to bigger players. The implementation of royalty increase will directly increase the costs of IUP holders. Based on our observation, most of the major players in Indonesia hold CCOW, therefore they would not be affected with the proposal from MoF. The proposal to increase the royalty rate will affect the smaller players holding IUP licenses more, who are already in a difficult situation in the low coal price environment. Less coal output from smaller producers in Indonesia would offset the current oversupply situation, which should support the coal price uptrend as demand remains strong. Higher royalty fee would risk over 100mn tonnes of coal from Indonesia to out of the market
12
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Figure 25: Royalty for coal mining

Type Coal contract of work (CCOW) Generation 1 Generation 2-3 IUP/KP: Open pit mining < 5,100 kcal/kg 5,100 - 6,100 kcal/kg > 6,100 kcal/kg IUP/KP: Underground mining < 5,100 kcal/kg 5,100 - 6,100 kcal/kg > 6,100 kcal/kg Source: Ministry of Energy and Mineral Resources 2% 4% 6% 25% 25% 25% 3% 3% 7% 25% 25% 25% 13.5% 13.5% 45% 25% Royalty Corporate tax
Ministry of Finance proposes to increase royalty fee for IUP holders to 1013.5%
Bukit Asam holds IUP for its mining area. The company sells 50% of its volume to PLN (State Owned Electricity company), and it could pass on the cost increase to PLN, in our view. ITMG also holds an IUP license under its Kitadin mine. Kitadin only contributes around 13% of total ITMGs production. Our new forecast has already incorporated the royalty increase for IUP in 2013 to 13.5%.
Figure 26: Licenses held
Company Indo Tambangraya Concession Name Indominco Trubindo Jorong Bharinto Kitadin Total Tanjung Enim, Banko, Peranap Total Mahakam Sumber Jaya Santan Batubara Tambang Batubara Harum Total Tutupan+Paringin Wara MIP Total Kideco Santan Batubara Total License Type CCOW1 CCOW2 CCOW2 CCOW3 IUP IUP CCOW3 CCOW3 IUP CCOW1 CCOW2 IUP CCOW1 CCOW3 Expiry 2030 2035 2035 2027 n.a. 20192035 2034 2038 n.a. 2022 2022 n.a. 2023 2038 Production (mn tonnes 2013 14.0 8.0 1.1 2.1 3.9 29.1 18.0 18.0 10.0 2.4 12.4 39.6 10.3 49.9 37.0 2.4 39.4 2014 14.5 8.0 1.1 3.0 3.5 30.1 20.0 20.0 12.0 2.5 0.5 15.0 39.6 12.3 0.5 52.4 38.0 2.5 40.5
Bukit Asam Harum
Adaro
Indika
Source: Company data
13
23 July 2013
Stock pick: We prefer Bukit Asam

Under pressure in deteriorating coal price environment
The share prices have collapsed as coal price has come off. We expect the coal price to remain at the current level until the end of 2014 when we expect some recovery with the decline in coal inventory level and more production discipline by high-cost coal mining companies. The price performance of the stocks in 12 months shows that the share prices have been hit more than the coal itself.
Figure 27: Share prices decline more than coal price
%
(10.0) 0.8 (13.4) (29.5) (28.4) (27.4) (23.9) (21.6) 0.6 0.4 0.2 200 180 160
Figure 28: P/E relative to JCIUnderperforming
(20.0)
(30.0) (40.0) (50.0) (60.0) (70.0) (50.8) (48.6) (33.7)
140
100
(0.2) (0.4) (0.6) Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Indo Coal PE rel. To JCI Coal price (RHS)
80
60 40
(61.9)
(69.2)
20
-
(80.0)
DOID IJ
250% 200%
Source: Bloomberg
Source: Bloomberg
Coal companies are USD earners and report their financial statements in USD, with the exception of Bukit Asam. The weakening rupiah is beneficiary to the coal companies as they could lower their costs. The weak rupiah also causes weak sentiment to JCI, and therefore the share prices would be under more pressure.
Figure 29: Coal companies performance versus IDR
8,000 8,500 9,000
Figure 30: Underperforming JCI

200% 210 190
150% 170 150 130 50% 110 90
150%
100% 50% 0% -50%
9,500
10,500
11,000
11,500
12,000
Rp/USD
10,000
0%
70
-50% Jan-08 50 Jan-09 Coal co Jan-10 Jan-11 Jan-12 Jan-13 Coal price (RHS)
-100% 1/4/2008
12,500 1/4/2009 1/4/2010 1/4/2011 1/4/2012 1/4/2013

IDR Coal abs performance
Coal rel. perf to JCI
Source: Bloomberg
Source: Bloomberg
14
US$/tonne
100%
US$/tonne
120
(x) Avg Contractor ITMG IJ
INDY IJ
HRUM IJ
ADRO IJ
Avg Coal
UNTR IJ
ABMM IJ
PTBA IJ
Coal price
23 July 2013
Forecasts changes
As we lower our coal price assumption for 2013 to US$86/t from US$90/tonne previously, and for 2014 to US$91/tonne from US$93/tonne, we have revised our earnings estimates for coal mining companies under our coverage accordingly. (Please see Commodities Forecast Update: The Return of Fundamentals, 25 June 2013)
Figure 31: Forecast changes
TP (Rp) Company Adaro Bukit Asam Harum Indotambang Source: Credit Suisse estimates, New 900 17,000 3,500 26,000 Old 1,200 18,000 3,800 36,000 Change (%) (25.0) (5.6) (7.9) (30.6) Changes in earnings (%) 13E (8.8) (12.5) (27.4) (32.3) 14E (13.0) (6.0) (12.6) (27.9) 15E (3.4) 1.9 (0.4) n/a
Despite the bleak outlook of the coal sector, we see Bukit Asam (PTBA) as the stock to hold. We have an OUTPERFORM rating on the stock with a revised target price of Rp17,000 (down from Rp18,000 earlier). Thanks to the structure of the high-grade coal reserves, the company is one of the lowest cost coal producers. It enjoys a strong balance sheet with volume growth coming from the improvement in railway transportation capacity. However, we have become cautious on the companys trading activity, in order to achieve their output target, as it is less profitable than its own mining activity. Our second choice in the coal sector is Indotambang (ITMG), which provides relatively high dividend yield. We have a NEUTRAL rating on the stock with a revised target price of Rp26,000 (down from Rp36,000 earlier). We have revised our target prices for PTBA and ITMG downwards mainly on account of the new coal price assumption as stated above. Adaro (ADRO) also has an efficient operation. It has low-grade coal, but its mining operation is amongst the best in the country (mostly done by Pama, the mining contracting subsidiary of United Tractors). The company has been relatively more aggressive in acquiring new mines, therefore, they need to raise third-party financing and the interest expense hurts earnings. With low-rade coal reserves of around 40005000kcal/kg, the company is more exposed to Chinas potential ban on low quality coal import. We have a NEUTRAL rating on the stock, but reduced our target price to Rp900 from Rp1,200 earlier to reflect higher risk exposure. We also have a NEUTRAL rating on Harum with a target price of Rp3,500, down from Rp3,800 earlier. Harum has relatively high proportion of China sales, however, the company has high-grade coal, and therefore the impact would be minimal on the potential Chinese ban on low-quality coal import.
Figure 32: Valuation comparison
Price Ticker Coal ADRO.JK PTBA.JK ITMG.JK HRUM.JK N O N N 700 11,500 26,000 2,800 900 17,000 26,000 3,500 29% 48% 0% 25% 2,226 2,634 2,920 752 Rtg (local) TP Upside (local) Mkt Cap P/E (x) 13E 10.6 7.4 10.1 13.0 13.0 14E 8.5 6.5 8.3 10.4 7.7 EV/EBITDA (x) 13E 5.9 4.4 6.1 7.1 5.6 14E 4.8 4.2 4.7 5.6 3.7
Our top pick: Bukit Asam
Adaro exposed more to Chinas ban on low-quality coal
EPS growth 13E -30% -22% -9% -48% -56% 14E 25% 14% 21% 25% 68%
Div. Yield 13E 5% 4% 6% 7% 4% 14E 7% 5% 7% 8% 6%
EV/reserve
% (US$ mn)
3.4 1.2 6.6 2.8
15
23 July 2013
Figure 33: Positives and negatives

Positives Adaro (ADRO) Low-grade coal which is high in demand Efficiency programme to reduce cost with OPP, mine mouth power plant, and expansion of port Large reserves for over 23 years High-grade coal Selling mostly to domestic market, less exposed to international coal price Low cost with low strip ratio Net cash, no debt Increasing railway capacity, and other power plant projects for future growth Large reserves for over 100 years High-grade coal Strong volume growth from small operations Net cash position, no debt Negatives Indotambang (ITMG) High-grade coal Strong volume growth More efficient operation with installation of conveyer belts Good bargaining power for their coal, considering the size Net cash position, no debt, high dividend yield Cost relative to price, lowest operating cash margin Higher balance sheet risk with net debt to equity of 50% Rail transportation constraint kept the growth in check Going into IPP, less profitable than coal mining High execution risks on the railway and power plant projects Small volumelimited bargaining power on the export market High cost operation Small volumelimited bargaining power Requires to buy low-grade coal to fulfill domestic market obligation, which hurt cost Reserves life of less than 10 years, need to invest on exploration or acquistion to increase reserves Concern on whether the price could be sustainable Reserves life although more than 10 years, but relatively shortneeds to spend more capex for exploration
Bukit Asam (PTBA)
Harum (HRUM)
Source: Company data, Credit Suisse research
16
23 July 2013
Asia Pacific / Indonesia Diversified Metals & Mining
PT Adaro Energy Tbk

(ADRO.JK / ADRO IJ)
Rating NEUTRAL* [V] Price (22 Jul 13, Rp) 700.00 Target price (Rp) (from 1,200.00) 900.00 Upside/downside (%) 28.6 22,390,173 (US$ Mkt cap (Rp mn) 2,226) Enterprise value (US$ mn) 3,903 Number of shares (mn) 31,985.96 Free float (%) 40.0 52-week price range 1,750.0 - 690.0 ADTO - 6M (US$ mn) 4.5
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).
DECREASE TARGET PRICE
Cost reduction programme continues

Efficiency priced in: We retain our NEUTRAL rating on Adaro with a new target price of Rp900/sh (down from Rp1,200/sh earlier). We are positive on the companys cost efficiency programmes and volume growth. The lowgrade coal has strong demand, which has put Adaros selling price with lower discount to the benchmark price, as compared to other high-grade coal. However, these seem to have been in the price. More efficient operation: Cost cutting initiatives have been carried out by improving hauling roads, to reduce travel time and increase volume. The operation of the conveyer belt system for overburden and mine mouth power plants along with increasing capacity at the ports, should improve the costs further. Volume growth is expected to be around 5% this year from existing operational areas. Suspend operation in new areas: Adaro is focussing on the existing operations for maintaining efficiency and increasing volumes. Limited work is done in other new areas. At the current low coal price environment and with the potential ban of low-quality imports by China, it is not economical to produce from those areas. Either the areas have even lower grade coal, with limited market, or have expensive transportation method to bring the coal out of the mine to the port, although the infrastructure may have been completed. For example, in MIPSouth Sumatra, Adaro has also built the road (Servo road) to connect the mine area to the port. Valuation: The revision in our coal price assumptions has reduced our 201314 earnings estimates by 913%. We retain our NEUTRAL rating on the stock with a target price of Rp900/share (down from Rp1,200) based on 2014 P/E target of 8x (20% discount to the sector average), to reflect the risk on Chinese import ban of low quality coal. Key risks to our forecasts and valuation are lower-thanexpected coal price, volumes and higher-than-expected costs.
Research Analysts Ami Tantri 62 21 2553 7976 ami.tantri@credit-suisse.com
Share price performance

4000 3000 2000 1000 0 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Price (LHS) Rebased Rel (RHS) 120
70 20
The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 4678.98 on 22/07/13 On 22/07/13 the spot exchange rate was Rp10060./US
Performance Over Absolute (%) Relative (%)
1M -15.7 -19.3
3M -42.6 -36.7
12M -50.7 -65.4
Financial and valuation metrics Year Revenue (US$ mn) EBITDA (US$ mn) EBIT (US$ mn) Net profit (US$ mn) EPS (CS adj.) (US$) Change from previous EPS (%) Consensus EPS (US$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)
12/12A 3,722.5 1,129.2 869.6 385.3 0.01 n.a. n.a. -30.0 5.8 5.3 3.7 0.87 15.4 65.0
12/13E 3,362.7 942.1 675.8 302.2 0.01 -8.8 0.01 -21.6 7.4 4.1 4.1 0.81 11.4 52.8
12/14E 3,589.7 1,003.5 733.9 344.7 0.01 -13.0 0.01 14.1 6.5 4.6 3.5 0.74 12.0 37.1
12/15E 4,100.4 1,301.7 1,029.6 522.8 0.02 -3.4 0.01 51.7 4.3 7.0 2.3 0.65 16.3 18.3
Source: Company data, Thomson Reuters, Credit Suisse estimates.
17
23 July 2013
PT Adaro Energy Tbk ADRO.JK / ADRO IJ

Price (22 Jul 13): Rp700.00, Rating:: NEUTRAL [V], Target Price: Rp900.00, Analyst: Ami Tantri
Target price scenario Scenario Upside Central Case Downside TP 990.00 900.00 810.00 %Up/Dwn Assumptions 43.42 28.57 8x FY14E PE 17.35 12/12A 3,722 2,680 173.1 (259.6) 1,129 259.6 870 107.2 (48.6) 713.7 330.4 383.3 (2.0) 385.3 385.3 12/12A 870 (107.2) (330.4) (212.7) 213.5 432.7 (484.3) (51.6) (484.3) (226.0) 250.7 24.8 (26.8) (26.8) 12/12A 500 474.0 64.5 375.0 1,414 3,696 393.6 1,022 166.1 6,692 352.7 300.1 246.5 899.2 2,146 652.1 3,697 2,559 436.1 6,692 12/13E 3,363 2,514 173.1 (266.3) 942 266.3 676 113.9 (15.4) 546.5 245.9 300.6 (1.6) 302.2 302.2 12/13E 676 (113.9) (245.9) 3.3 266.3 585.6 (200.0) 385.6 (200.0) (117.1) (215.4) (332.5) 53.1 53.1 12/13E 553 428.2 60.5 375.0 1,417 3,630 393.6 1,007 166.1 6,614 330.8 300.1 221.8 852.7 1,930 652.1 3,435 2,744 434.5 6,614 12/14E 3,590 2,683 173.1 (269.6) 1,004 269.6 734 95.0 (15.4) 623.4 280.5 342.9 (1.8) 344.7 344.7 12/14E 734 (95.0) (280.5) (32.9) 269.6 595.0 (100.0) 495.0 (100.0) (90.6) (206.1) (296.8) 198.3 198.3 12/14E 752 457.1 64.6 375.0 1,648 3,461 393.6 991 166.1 6,660 353.1 300.1 199.7 852.8 1,724 652.1 3,229 2,998 432.7 6,660 12/15E 4,100 2,892 178.3 (272.1) 1,302 272.1 1,030 68.7 (15.4) 945.5 425.5 520.0 (2.8) 522.8 522.8 12/15E 1,030 (68.7) (425.5) (62.4) 272.1 745.2 (75.0) 670.2 (75.0) (103.4) (208.4) (311.8) 358.4 358.4 12/15E 1,110 522.1 69.6 375.0 2,077 3,263 393.6 976 166.1 6,876 380.7 300.1 179.7 860.4 1,516 652.1 3,028 3,418 429.9 6,876 Key earnings drivers Thermal coal price Average (USD/t) selling price (USD/t) Sales volume (Mn t) 12/12A 95.0 70.7 48.6 12/12A 31,986 0.01 0.000 0.08 0.01 12/12A 12/13E 86.0 60.8 53.0 12/13E 31,986 0.01 0.000 0.09 0.02 12/13E 12/14E 91.0 62.1 55.5 12/14E 31,986 0.01 0.000 0.09 0.02 12/14E 12/15E 100.0 68.2 58.1 12/15E 31,986 0.02 0.000 0.11 0.02 12/15E
Income statement (US$ mn) Sales revenue Cost of goods sold SG&A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash flow (US$ mn) EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash Balance sheet (US$ mn) Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liab. Total liabilities Shareholders' equity Minority interests Total liabilities & equity
Per share data Shares (wtd avg.) (mn) EPS (Credit Suisse) (US$) DPS (US$) BVPS (US$) Operating CFPS (US$) Key ratios and valuation Growth(%) Sales revenue EBIT Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x)
(6.6) (32.3) (30.0) (30.0) 30.3 23.4 19.2 10.4 5.78 0.87 5.26 5.14 1.12 3.69 4.80 15.4 10.5 0.56 0.82 0.54 2.23 65.0 1.72 8.1
(9.7) (22.3) (21.6) (21.6) 28.0 20.1 16.3 9.0 7.37 0.81 4.07 3.80 1.16 4.14 5.77 11.4 7.6 0.51 0.81 0.55 2.08 52.8 1.78 5.9
6.8 8.6 14.1 14.1 28.0 20.4 17.4 9.6 6.46 0.74 4.65 3.74 0.97 3.49 4.77 12.0 8.4 0.54 0.85 0.55 1.94 37.1 1.27 7.7
14.2 40.3 51.7 51.7 31.7 25.1 23.1 12.8 4.26 0.65 7.05 2.99 0.71 2.25 2.85 16.3 12.2 0.60 0.92 0.55 1.79 18.3 0.54 15.0

12MF P/E multiple
20 18 16 14 12 10 8 6 4 2 0 2008
2009
2010
2011
2012
12MF P/B multiple

4.5 4.0 3.5
3.0
2.5
2.0
1.5
1.0
0.5 0.0 2008 2009 2010 2011 2012
Source: IBES
18
23 July 2013
PT Harum Energy Tbk

(HRUM.JK / HRUM IJ)
Rating NEUTRAL Price (22 Jul 13, Rp) 2,800.00 Target price (Rp) (from 3,800.00) 3,500.00 Upside/downside (%) 25.0 7,570,136.0 (US$ Mkt cap (Rp mn) 752.5) Enterprise value (US$ mn) 326.40 Number of shares (mn) 2,703.62 Free float (%) 29.8 52-week price range 6,600.0 - 2,800.0 ADTO - 6M (US$ mn) 2.9
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. Target price is for 12 months.
Need to increase reserves

Strong volume growth, but low reserves: Harum recorded strong volume growth of 11% YoY and 26% QoQ in 1Q13, as it came from a small production volume. Harums operation is considered as high cost with an average strip ratio of over 10x. The strip ratio was down to 7.2x in 1Q13, however, considering the size of the reserves with less than 10-year life, it would be difficult for the company to maintain such low strip ratio, and hence cost would eventually increase. Net cash position: Harum has high-grade coal reserves, which are for the export market. The company exports 95% of its coal, and therefore it requires to buy low-grade coal from other miners to fullfill the domestic market obligation. Santan Batubara, 50% owned by Harum, has higher strip ratio, resulting in higher cost. Despite all these, the operation is still cash generating. Harum still has US$197 mn cash as at 31 March 2013, up from US$163 mn as at December 2012. This condition helps in increasing reserves either by more exploration work or acquisition. Limited catalyst: We expect coal price to stay as it is at least until the end of 2014, considering the oversupply situation. Demand is not the concern. However, being relatively a small company, Harum has less bargaining power for its coal. Maintain NEUTRAL: We have adjusted our 201314 earnings estimates downwards for Harum by 1327% due to the lower coal price assumptions. We retain our NEUTRAL rating on Harum with a target price of Rp3,500 (down from Rp3,800 earlier) for end 2013, which is based on 10x P/E target for 2014, reflecting the sector average. Key risks are lower-than-expected coal price, higher cost and lower volumes.

10000 8000 6000 4000 2000 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Price (LHS) Rebased Rel (RHS) 120
70 20
The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 4678.98 on 22/07/13 On 22/07/13 the spot exchange rate was Rp10060./US$1
1M -14.5 -18.1
3M -40.1 -34.2
12M -54.1 -68.7
12/12A 1,043.3 223.1 211.5 131.6 0.05 n.a. n.a. -20.8 5.7 9.7 2.6 2.1 38.6 net cash
12/13E 893.4 104.3 98.9 57.6 0.02 -27.4 0.04 -56.2 13.0 3.8 3.1 1.3 12.4 net cash
12/14E 1,139.4 157.7 142.6 97.1 0.04 -12.6 0.04 68.5 7.7 6.5 1.6 1.2 15.8 net cash
12/15E 1,502.9 275.2 244.3 179.4 0.07 -0.4 0.05 84.7 4.2 11.9 0.4 1.0 25.2 net cash
19
23 July 2013
PT Harum Energy Tbk HRUM.JK / HRUM IJ

Price (22 Jul 13): Rp2,800.00, Rating:: NEUTRAL, Target Price: Rp3,500.00, Analyst: Ami Tantri
Target price scenario Scenario Upside Central Case Downside TP %Up/Dwn Assumptions 3,850.00 39.44 3,500.00 25.00 Our TP is based on 10x PE of FY 14E 3,150.00 14.09 12/12A 1,043 724 107.5 (8.7) 223.1 8.7 211.5 (1.1) (2.4) 2.9 213.0 51.3 161.7 30.1 131.6 131.6 12/12A 211.5 (2.5) (75.5) (49.5) 28.2 112.1 (18.1) 94.0 (1.7) 3.2 (16.6) 0.0 (116.0) (0.23) (0.06) (116.3) (20.8) (20.8) 12/12A 163.1 68.2 101.9 2.3 335.6 122.6 22.3 58.1 539 85.4 21.8 107.2 2.8 110.0 349.8 78.8 539 12/13E 893 698 96.3 (9.2) 104.3 9.2 98.9 (14.7) (3.7) 109.9 26.5 83.4 25.7 57.6 57.6 12/13E 98.9 14.7 (26.5) 10.4 9.2 106.7 (15.0) 91.7 (15.0) 241.1 (69.9) 171.2 263.0 263.0 12/13E 426.1 58.4 98.2 2.3 585.1 128.4 18.6 58.1 790 82.3 21.8 104.1 2.8 106.9 578.7 104.6 790 12/14E 1,139 879 117.6 (9.7) 157.7 9.7 142.6 (23.2) 5.4 171.2 41.3 129.9 32.8 97.1 97.1 12/14E 142.6 23.2 (41.3) (20.2) 9.7 114.0 (15.0) 99.0 4.3 (10.7) (28.8) (28.8) 74.5 74.5 12/14E 500.6 74.5 123.7 2.3 701.1 133.7 19.7 58.1 913 103.6 21.8 125.4 2.8 128.3 647.0 137.4 913 12/15E 1,503 1,110 148.6 (10.2) 275.2 10.2 244.3 (28.4) 20.7 293.5 70.7 222.7 43.3 179.4 179.4 12/15E 244.3 28.4 (70.7) (29.0) 10.2 183.2 (15.0) 168.2 16.6 1.6 (48.6) (48.6) 136.2 136.2 12/15E 636.8 98.3 156.2 2.3 893.6 138.5 23.8 58.1 1,114 130.9 21.8 152.6 2.8 155.5 777.9 180.7 1,114 Key earnings drivers Thermal coal price Average Selling Price Production volume incl. 50% SB Per share data Shares (wtd avg.) (mn) EPS (Credit Suisse) (US$) DPS (US$) BVPS (US$) Operating CFPS (US$) Key ratios and valuation Growth(%) Sales revenue EBIT Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) 12/12A 96.0 82.7 10.6 12/12A 2,700 0.05 0.03 0.13 0.04 12/12A 12/13E 86.0 66.7 11.2 12/13E 2,700 0.02 0.01 0.21 0.04 12/13E 12/14E 91.0 70.6 14.0 12/14E 2,700 0.04 0.02 0.24 0.04 12/14E 12/15E 100.0 77.5 17.7 12/15E 2,700 0.07 0.03 0.29 0.07 12/15E
25.5 (17.0) (20.8) (20.8) 21.4 20.3 20.4 12.6 5.7 2.15 9.7 6.70 0.56 2.64 2.79 38.6 68.3 1.94 1.01 0.76 1.26 (38.1) (0.73) (196)
(14.4) (53.3) (56.2) (56.2) 11.7 11.1 12.3 6.5 13.0 1.30 3.8 7.04 0.37 3.13 3.30 12.4 28.7 1.13 1.11 0.76 1.16 (62.4) (4.08) (7)
27.5 44.3 68.5 68.5 13.8 12.5 15.0 8.5 7.7 1.16 6.5 6.59 0.22 1.60 1.77 15.8 40.0 1.25 1.20 0.76 1.16 (63.8) (3.17) (6)
31.9 71.3 84.7 84.7 18.3 16.3 19.5 11.9 4.2 0.97 11.9 4.10 0.08 0.42 0.47 25.2 61.2 1.35 1.20 0.76 1.16 (66.4) (2.31) (9)

12MF P/E multiple
20 18 16 14 12 10 8 6 4 2 0 Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
12MF P/B multiple

9 8 7
6
5
4
3
2
1 0 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Source: IBES
20
23 July 2013
Asia Pacific / Indonesia Non Ferrous Metals
PT Indo Tambangraya Megah

(ITMG.JK / ITMG IJ)
Rating NEUTRAL Price (22 Jul 13, Rp) 26,000 Target price (Rp) (from 36,000) 26,000 Upside/downside (%) 29,378,050 (US$ Mkt cap (Rp mn) 2,920) Enterprise value (US$ mn) 2,668 Number of shares (mn) 1,129.92 Free float (%) 35.0 52-week price range 42,700.0 - 25,050.0 ADTO - 6M (US$ mn) 3.7
High dividend with limited downside

Lower coal prices and higher cost assumptions: Our earnings forecasts for ITMG are revised down by 26% and 19%, for FY13E and FY14E respectively. Following our reduction in thermal coal price forecast, we are now assuming a conservative ASP of US$76/t in FY13E, lower than the company's guidance of US$80/t. On the cost side, we raised our cost assumptions, as cost cutting seems to progress more slowly than our forecast. We have also factored in a possible rise in IUP royalty to 13.5% to our FY14E forecast. We revise down our target price to Rp26,000/sh (from Rp36,000/sh earlier). Volume growth to mitigate the impacts of falling coal price: ITMG has set a plan to increase volume over the next two years to partly offset the impacts of falling prices. We forecast average volume growth of 5% CAGR over 201215. The production ramp up at Bharinto mine would contribute to volume growth for ITMG. We estimate that its average CV would increase to above 6,100kcal/kg with increasing volume from the Bharinto mine. Risks to consensus forecast are on the downside. We believe that coal prices may be close to a floor but recovery would be slow through 2014. In this scenario, earnings risks are on the downside due to potential miss in cost targets and operational leverage. Our forecasts are 27% and 20% below consensus for FY13 and FY14. High dividend payment to continue: ITMG is currently in a net cash position. Banpu, ITMGs 65% shareholder, also needs cash to f und its operation elsewhere. This should mean upside potential to its dividend payout ratio which we currently assume at 85%. We revise down our target price to Rp26,000/sh (from Rp36,000/sh). Our new target price is based on floor P/B (during the previous trough cycle in 2009) of 3.1x (ROE then was 27% versus our estimate of 31% in FY14E). We maintain our NEUTRAL rating on ITMG.
Research Analysts Paworamon (Poom) Suvarnatemee, CFA 66 2 614 6210 paworamon.suvarnatemee@credit-suisse.com Wattana Punyawattanakul 66 2 614 6215 wattana.punyawattanakul@credit-suisse.com

60000 50000 40000 30000 20000 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Price (LHS) Rebased Rel (RHS) 120 100 80 60 40
1M 2.0 -1.7
3M -32.5 -26.5
12M -30.8 -45.4
12/12A 2,438.9 613.2 550.9 432.0 0.38 n.a. n.a. -20.9 6.8 12.4 4.0 2.9 41.5 net cash
12/13E 2,223.7 347.4 279.8 224.9 0.20 -25.6 0.28 -47.9 13.0 6.5 7.7 3.4 24.2 net cash
12/14E 2,421.7 437.1 367.0 281.6 0.25 -19.5 0.30 25.2 10.4 8.2 5.9 3.1 31.1 net cash
12/15E 2,616.2 509.0 436.5 335.6 0.30 0.32 19.2 8.7 9.8 4.9 2.8 33.6 net cash
21
23 July 2013
PT Indo Tambangraya Megah ITMG.JK / ITMG IJ

Price (22 Jul 13): Rp26,000, Rating:: NEUTRAL, Target Price: Rp26,000, Analyst: Paworamon (Poom) Suvarnatemee
Target price scenario Scenario Upside Central Case Downside TP 26,000.00 12/12A 2,439 1,698 182.7 (54.8) 613.2 62.3 550.9 (13.3) 48.5 612.7 159.1 453.6 453.6 (21.6) 432.0 12/12A 550.9 13.3 (159.1) (67.4) 110.9 448.5 (89.3) 359.2 (89.3) (505.0) (5.5) (510.4) (151.2) (151.2) 12/12A 461.2 249.2 151.0 107.5 968.9 335.5 186.8 1,491 185.6 44.1 207.3 437.0 50.3 1.5 488.8 1,002 1,491 %Up/Dwn Assumptions 0 PE (strip cash) at 12x 12/13E 2,224 1,770 171.2 (64.5) 347.4 67.6 279.8 (9.3) 10.0 299.1 74.2 224.9 224.9 224.9 12/13E 279.8 9.3 (74.2) 14.3 77.6 306.8 (148.3) 158.5 (148.3) (367.2) (367.2) (208.8) (208.8) 12/13E 252.4 227.2 161.4 98.0 739.1 367.7 238.7 1,345 198.4 20.6 211.2 430.2 53.6 1.5 485.3 860 1,345 12/14E 2,422 1,878 173.6 (66.9) 437.1 70.1 367.0 (7.4) 374.4 92.9 281.6 281.6 281.6 12/14E 367.0 7.4 (92.9) (12.2) 70.1 339.4 (80.7) 258.7 (80.7) (191.2) (191.2) 67.5 67.5 12/14E 320.0 247.4 169.1 106.8 843.3 371.6 249.1 1,464 208.0 25.7 221.0 454.7 57.3 1.5 513.5 950 1,464 12/15E 2,616 1,995 181.0 (69.2) 509.0 72.5 436.5 (9.7) 446.2 110.7 335.6 335.6 335.6 12/15E 436.5 9.7 (110.7) (8.7) 72.5 399.4 (50.6) 348.8 (50.6) (239.3) (239.3) 109.4 109.4 12/15E 429.4 267.3 179.1 115.3 991.2 362.5 1.00 240.5 1,595 220.3 30.7 233.5 484.5 61.5 1.5 547.5 1,047 1,594 Per share data Shares (wtd avg.) (mn) EPS (Credit Suisse) (US$) DPS (US$) BVPS (US$) Operating CFPS (US$) Key ratios and valuation Growth(%) Sales revenue EBIT Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) Key earnings drivers Benchmark coal prices ASP (USD/t) (USD/t) 12/12A 95.0 89.9 12/12A 1,130 0.38 0.32 0.89 0.40 12/12A 12/13E 85.8 76.1 12/13E 1,130 0.20 0.17 0.76 0.27 12/13E 12/14E 91.2 79.9 12/14E 1,130 0.25 0.21 0.84 0.30 12/14E 12/15E 100.0 83.5 12/15E 1,130 0.30 0.25 0.93 0.35 12/15E
2.40 (20.3) (20.9) (20.9) 25.1 22.6 25.1 17.7 6.8 2.91 12.4 6.5 1.01 4.01 4.5 41.5 80.8 1.64 1.11 0.74 1.49 (46.0) (0.75) (41.5)
(8.83) (49.2) (47.9) (47.9) 15.6 12.6 13.4 10.1 13.0 3.40 6.5 9.5 1.20 7.68 9.5 24.2 36.6 1.65 1.07 0.75 1.56 (29.4) (0.73) (30.2)
8.90 31.2 25.2 25.2 18.0 15.2 15.5 11.6 10.4 3.07 8.2 8.6 1.07 5.95 7.1 31.1 44.6 1.65 1.02 0.75 1.54 (33.7) (0.73) (49.4)
8.03 19.0 19.2 19.2 19.5 16.7 17.1 12.8 8.7 2.79 9.8 7.3 0.95 4.89 5.7 33.6 52.6 1.64 1.02 0.75 1.52 (41.0) (0.84) (44.9)

12MF P/E multiple
18 16
14
12 10
8
6 4 2 0 2008 2009 2010 2011 2012 2013
12MF P/B multiple

7 6 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013
Source: IBES
22
23 July 2013
PT Tambang Batubara Bukit Asam Tbk (PTBA.JK / PTBA IJ)

Rating OUTPERFORM Price (22 Jul 13, Rp) 11,500 Target price (Rp) (from 18,000) 17,000 Upside/downside (%) 47.8 Mkt cap (Rp bn) 26,497.5 (US$ 2.6) Enterprise value (Rp bn) 21,265 Number of shares (mn) 2,304.13 Free float (%) 35.0 52-week price range 16,900.0 - 11,350.0 ADTO - 6M (US$ mn) 3.5
Expansion of railway in progress, higher royalty could be passed on partially

Our preferred stock: Bukit Asams average selling price relative to its highgrade coal seems to be low, as the company is selling mostly to PLN, the state-owned power company. However, the company still enjoys cash margin of over US$20/t, thanks to its low-cost structure due to low strip ratio. We expect its volumes to grow by 12% p.a. over the next two years following the gradual improvement in railway capacity. Investment case: The current operation is still constrained by the transportation issue, although major improvement has been done. With large reserves having life of over 100 years, there is potential for strong volume growth. In the difficult market condition, Bukit Asam is still able to have relatively strong cash margin. With a bigger size, the company should have better barganining power for its export price. The railway projects and mine mouth power plan projects are the way to increase volume, although we are concerned with the execution risk. Catalysts: Although having a large portion of sales to the domestic market, Bukit Asam is still exposed to the movement of international coal prices. We expect the coal price to remain at the current level until end of 2014 considering the oversupply situation, before we see some pick up in price. The company is exposed to the risk of the governments intention to hike royalty, although they could pass on the same to PLN. Our preferred stock in the coal sector: At lower coal price assumptions for 201314 and higher royalty fee, we have reduced our 2013-14 earnings estimates by 13 and 6% respectively. This is our preferred stock in the sector. Our revised target price of Rp17,000 (down from Rp18,000 earlier) is based on a P/E target 12.5x for 2014 or 25% premium to the sector average. We believe the stock deserves the premium considering its large reserves, high-grade coal with long-term growth potential, low cost and net cash with upside potential for further improvement.

Price (LHS) 20000
15000 10000 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13
Rebased Rel (RHS)
120 100 80 60 40
1M -5.7 -9.4
3M -24.3 -18.4
12M -27.0 -41.6
Financial and valuation metrics Year Revenue (Rp bn) EBITDA (Rp bn) EBIT (Rp bn) Net profit (Rp bn) EPS (CS adj.) (Rp) Change from previous EPS (%) Consensus EPS (Rp) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)
12/12A 11,594.1 3,691.6 3,593.5 2,900.1 1,258.66 n.a. n.a. -6.0 9.1 6.0 5.6 3.1 35.1 net cash
12/13E 11,877.9 3,406.8 3,252.1 2,635.3 1,143.73 -12.5 1,123 -9.1 10.1 6.0 6.2 2.8 29.5 net cash
12/14E 15,302.9 4,344.6 4,166.5 3,193.2 1,385.84 -6.0 1,244 21.2 8.3 7.2 4.7 2.4 31.1 net cash
12/15E 19,124.1 6,353.6 6,152.1 4,834.9 2,098.36 1.9 1,454 51.4 5.5 10.9 2.9 1.9 38.6 net cash
23
23 July 2013
PT Tambang Batubara Bukit Asam Tbk

Target price scenario Scenario Upside Central Case Downside TP 18,700.00 17,000.00 15,300.00 %Up/Dwn Assumptions 62.61 47.83 33.04 12/12A 11,594 6,506 1,495 (98.1) 3,692 98.1 3,594 (324.0) (5.9) 3,912 1,002 2,909 9.3 2,900 2,900 12/12A 3,594 324.0 (1,002) (910.0) 207.3 2,213 (877) 1,335 (243.9) (61.2) (1,182) (1,616) (288.6) (1,904) (874) (874) 12/12A 5,917 1,546 766 489.7 8,718 1,853 2,157 12,729 149.8 34.9 1,586 1,771 9.7 232.5 2,211 4,224 8,419 86.1 12,729 12/13E 11,878 7,200 1,426 (154.8) 3,407 154.8 3,252 (277.6) (42.0) 3,488 844 2,644 8.5 2,635 2,635 12/13E 3,252 277.6 (844) 0.7 154.8 2,841 (1,710) 1,131 (176.6) (1,887) (1,595) (1,595) (640) (640) 12/13E 5,277 1,583 848 489.7 8,198 3,399 2,344 13,940 165.8 34.9 1,690 1,891 9.7 274.5 2,211 4,386 9,459 94.5 13,940 12/14E 15,303 9,549 1,587 (178.1) 4,345 178.1 4,167 (286.2) (42.0) (178.0) 4,233 1,029 3,203 10.2 3,193 3,193 12/14E 4,167 286.2 (1,029) (326.0) 178.1 3,275 (710) 2,565 (0.7) (711) (1,581) (1,581) 984 984 12/14E 6,260 2,040 1,124 489.7 9,914 3,921 2,177 16,011 219.8 34.9 2,043 2,298 9.7 316.5 2,211 4,835 11,071 104.8 16,011 12/15E 19,124 11,184 1,788 (201.4) 6,354 201.4 6,152 (363.4) (42.0) (55.0) 6,418 1,568 4,850 15.5 4,835 4,835 12/15E 6,152 363.4 (1,568) (418.5) 201.4 4,730 (710) 4,020 (0.7) (711) (1,916) (1,916) 2,104 2,104 12/15E 8,364 2,549 1,317 489.7 12,720 4,419 2,132 19,271 257.5 34.9 2,289 2,581 9.7 358.5 2,211 5,161 13,990 120.3 19,271
PTBA.JK / PTBA IJ
12/12A 80.7 15.3 96.0 12/12A 2,304 1,259 692 3,654 960 12/12A 12/13E 63.9 18.0 86.0 12/13E 2,304 1,144 686 4,105 1,233 12/13E 12/14E 69.4 22.0 91.0 12/14E 2,304 1,386 832 4,805 1,422 12/14E 12/15E 76.4 25.0 100.0 12/15E 2,304 2,098 1,259 6,072 2,053 12/15E
Price (22 Jul 13): Rp11,500, Rating:: OUTPERFORM, Target Price: Rp17,000, Analyst: Ami Tantri
Key earnings drivers Average Selling Price Sales Volume (MT) (USD/t) Thermal coal price (USD/t) Per share data Shares (wtd avg.) (mn) EPS (Credit Suisse) (Rp) DPS (Rp) BVPS (Rp) Operating CFPS (Rp) Key ratios and valuation Growth(%) Sales revenue EBIT Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x)
Income statement (Rp bn) Sales revenue Cost of goods sold SG&A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash flow (Rp bn) EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash Balance sheet (Rp bn) Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liab. Total liabilities Shareholders' equity Minority interests Total liabilities & equity
9.6 (2.0) (6.0) (6.0) 31.8 31.0 33.7 25.0 9.1 3.15 6.0 12.0 1.78 5.59 5.74 35.1 133 0.91 1.09 0.74 1.50 (69.0) (1.59) (11.1)
2.4 (9.5) (9.1) (9.1) 28.7 27.4 29.4 22.2 10.1 2.80 6.0 9.3 1.79 6.24 6.54 29.5 71 0.85 1.07 0.76 1.46 (54.8) (1.54) (11.7)
28.8 28.1 21.2 21.2 28.4 27.2 27.7 20.9 8.3 2.39 7.2 8.1 1.33 4.67 4.87 31.1 68 0.96 1.02 0.76 1.43 (55.6) (1.43) (14.6)
25.0 47.7 51.4 51.4 33.2 32.2 33.6 25.3 5.5 1.89 10.9 5.6 0.95 2.86 2.95 38.6 86 0.99 1.04 0.76 1.37 (59.0) (1.31) (16.9)

12MF P/E multiple
20 18 16 14 12 10 8 6 4 2 0 2008
2009
2010
2011
2012
2013
12MF P/B multiple

7 6 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013
Source: IBES
24
23 July 2013
Companies Mentioned (Price as of 22-Jul-2013)

ABM Investama (ABMM.JK, Rp2,875) Anglo American Plc (AAL.L, 1379.0p) BHP Billiton (BHP.AX, A$34.12) Bank Mandiri (Persero) (BMRI.JK, Rp8,500) Bank Negara Indonesia (BBNI.JK, Rp4,225) China Coal Energy Co. (1898.HK, HK$4.07) China Shenhua Energy Company Limited (1088.HK, HK$22.35) Delta Dunia Makmur (DOID.JK, Rp135) PT Adaro Energy Tbk (ADRO.JK, Rp700, NEUTRAL[V], TP Rp900) PT Harum Energy Tbk (HRUM.JK, Rp2,800, NEUTRAL, TP Rp3,500) PT Indika Energy Tbk (INDY.JK, Rp690) PT Indo Tambangraya Megah (ITMG.JK, Rp26,000, NEUTRAL, TP Rp26,000) PT Tambang Batubara Bukit Asam Tbk (PTBA.JK, Rp11,500, OUTPERFORM, TP Rp17,000) Petrosea (PTRO.JK, Rp1,190) Rio Tinto (RIO.AX, A$56.55) United Tractors (UNTR.JK, Rp16,250) Whitehaven Coal (WHC.AX, A$2.19) Yanzhou Coal Mining Co. (1171.HK, HK$5.59)
Disclosure Appendix
Important Global Disclosures
Ami Tantri and Paworamon (Poom) Suvarnatemee, CFA, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for PT Adaro Energy Tbk (ADRO.JK)
ADRO.JK Date 08-Sep-10 23-Nov-10 10-Jan-11 07-Mar-11 31-Mar-11 13-Apr-11 06-Feb-12 07-Feb-12 09-Feb-12 11-Jul-12 01-Nov-12 16-Apr-13 Closing Price (Rp) 1,940 2,425 2,500 2,375 2,200 2,275 1,940 1,980 1,980 1,420 1,370 1,250 Target Price (Rp) 2,350 2,850 2,900 2,700 2,600 2,050 1,900 1,900 1,600 1,500 1,200
Rating O N
U N * N
O U T PERFO RM N EU T RA L U N D ERPERFO RM
* Asterisk signifies initiation or assumption of coverage.
3-Year Price and Rating History for PT Harum Energy Tbk (HRUM.JK)
HRUM.JK Date 13-Apr-11 06-Feb-12 07-Feb-12 09-Feb-12 11-Jul-12 14-Sep-12 01-Nov-12 01-Feb-13 29-Mar-13 16-Apr-13 30-Apr-13 Closing Price (Rp) 9,150 7,600 7,650 8,100 5,850 6,350 5,250 6,150 4,800 4,975 4,150 Target Price (Rp) 9,600 10,000 10,000 8,000 7,000 6,500 5,500 4,700 3,800
Rating N* O * O R O N
N EU T RA L O U T PERFO RM REST RICT ED
25
23 July 2013
3-Year Price and Rating History for PT Indo Tambangraya Megah (ITMG.JK)
ITMG.JK Date 23-Nov-10 25-Feb-11 13-Apr-11 25-Sep-11 02-Nov-11 06-Feb-12 29-Jun-12 24-Jul-12 24-Oct-12 16-Apr-13 Closing Price (Rp) 49,450 45,200 48,500 40,650 44,800 39,350 35,950 36,450 42,550 38,450 Target Price (Rp) 63,000 54,000 57,000 53,000 55,000 50,000 40,000 38,000 41,000 36,000
Rating O
O U T PERFO RM N EU T RA L
3-Year Price and Rating History for PT Tambang Batubara Bukit Asam Tbk (PTBA.JK)
PTBA.JK Date 26-Jul-10 23-Nov-10 10-Jan-11 13-Apr-11 02-May-11 06-Feb-12 07-Feb-12 09-Feb-12 12-Jul-12 16-Apr-13 Closing Price (Rp) 16,500 20,400 22,550 22,100 22,350 20,300 20,200 20,950 14,900 15,300 Target Price (Rp) 18,400 25,600 28,200 27,200 26,500 25,000 25,000 19,000 18,000
Rating N O
* O
N EU T RA L O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment oppo rtunities. For Latin American and non-Japan Asia stocks, ratings are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Cana dian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attr activeness of a stocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stocks total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamen tals and/or valuation of the sector* relative to the groups historic fundamentals and/or valuation: Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
26
23 July 2013
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy* 42% (53% banking clients) Neutral/Hold* 40% (50% banking clients) Underperform/Sell* 15% (39% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for PT Adaro Energy Tbk (ADRO.JK) Method: Our target price of Rp 900 for PT Adaro (ADRO.JK) is based on a 2014E P/E (price/earnings) multiple of 8x, 20% discount to sector average. Risk: Risks to our Rp 900 target price for PT Adaro Energy Tbk are lower than expected volume and price, and possible higher costs considering the size of company's mining area.
Price Target: (12 months) for PT Indo Tambangraya Megah (ITMG.JK) Method: ITMG's target price of Rp26,000 is based floor P/B during the previous trough cycle in 2009 of 3.1x. Risk: The primary risk to our target price of Rp26,000/share for ITMG is the fluctuation in coal prices, which could materially impact our earnings forecast and, thus, our valuation of its coal business. Also, sales volume may be affected by unfavourable weather conditions or other operational disruptions. Issuance of operating licences at some coal mines is also a key risk to our forecasts.
Price Target: (12 months) for PT Harum Energy Tbk (HRUM.JK) Method: Our target price of Rp3,500/share for PT Harum Energy Tbk is based on a P/E (price-to-earnings) target of 10x our 2014 estimates, in line with sector average. Risk: Risks to our target price of Rp3,500 for PT Harum Energy Tbk include lower-than-expected volume and declining coal price.
Price Target: (12 months) for PT Tambang Batubara Bukit Asam Tbk (PTBA.JK) Method: Our target price of Rp17,000 is based on 12.5x P/E target for 2014, which implies a 25% premium to the sector's average considering the company's advantages over other coal companies on stronger volume growth, high profit margin, higher ROE compared, cash position, and possibly a higher dividend payment. Risk: Risks to our target price of Rp17,000 are declining coal price, and high execution risks of the railway project.
Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (ADRO.JK, HRUM.JK, PTBA.JK, 1171.HK, ABMM.JK, AAL.L, WHC.AX, 1898.HK, RIO.AX, INDY.JK, 1088.HK, BHP.AX, BBNI.JK, BMRI.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (PTBA.JK, 1171.HK, 1898.HK, RIO.AX, 1088.HK, BBNI.JK, BMRI.JK) within the past 12 months.
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23 July 2013
Credit Suisse provided non-investment banking services to the subject company (AAL.L, RIO.AX, BHP.AX, BBNI.JK, BMRI.JK) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (1171.HK, RIO.AX, BBNI.JK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (PTBA.JK, 1171.HK, 1898.HK, RIO.AX, 1088.HK, BBNI.JK, BMRI.JK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ADRO.JK, HRUM.JK, PTBA.JK, 1171.HK, ABMM.JK, WHC.AX, 1898.HK, RIO.AX, INDY.JK, 1088.HK, BHP.AX, UNTR.JK, BBNI.JK, BMRI.JK) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (AAL.L, RIO.AX, BHP.AX, BBNI.JK, BMRI.JK) within the past 12 months Credit Suisse may have interest in (ADRO.JK, ITMG.JK, HRUM.JK, PTBA.JK, ABMM.JK, DOID.JK, INDY.JK, UNTR.JK, BBNI.JK, BMRI.JK) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (1171.HK, WHC.AX, 1898.HK, 1088.HK). Credit Suisse has a material conflict of interest with the subject company (RIO.AX) . Credit Suisse is acting as advisor to Imerys on the proposed acquisition of the Luzenac Talc Group from Rio Tinto.
Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ADRO.JK, ITMG.JK, HRUM.JK, PTBA.JK, 1171.HK, ABMM.JK, DOID.JK, AAL.L, WHC.AX, 1898.HK, RIO.AX, INDY.JK, 1088.HK, BHP.AX, UNTR.JK, BBNI.JK, BMRI.JK) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (AAL.L, RIO.AX). As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Thailand) Limited ........................................................................................... Paworamon (Poom) Suvarnatemee, CFA PT Credit Suisse Securities Indonesia ......................................................................................................................................................Ami Tantri For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.creditsuisse.com/researchdisclosures or call +1 (877) 291-2683.
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23 July 2013 Asia Pacific/Indonesia Equity Research Diversified Metals & Mining

Indonesia Coal Mining Sector

Source: Company data, Credit Suisse estimates

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

Focus charts and table

Figure 3: P/E relative to JCIUnderperforming

130 50% 110 90

Source: Bloomberg, Credit Suisse research

Figure 4: Indonesias coal output

Figure 5: Coal price assumptions

Source: Company data, Credit Suisse estimates

Source: Credit Suisse estimates

Figure 6: Valuation comparison

Source: Company data, Credit Suisse estimates

Indonesia Coal Mining Sector

Coal surplus continues

Increasing regulatory risks

Stock pick: We prefer Bukit Asam

Indonesia Coal Mining Sector

Indonesia Coal Mining Sector

Figure 7: Regional comparison

Source: Company data, Credit Suisse estimates

Indonesian coal companies plan to grow output

Coal export reached its peak in 4Q12

Lowering cost by operating in areas with lower strip ratio

Figure 9: Indonesias coal output

Source: Bank Indonesia; CS comment: Data include lignite

Source: Custom data, Credit Suisse estimates

Indonesia Coal Mining Sector

Growing domestic consumption

Domestic coal consumption to increase slowly, mostly to power plants

Figure 11: Indonesias coal export destination in 2012

Viet Nam 0% Malaysia 4% Philippines 3%

Japan 9% Hong Kong 3% South Korea 10%

Source: MEMR, Credit Suisse estimates

Source: Bank Indonesia

Mining companies get financing from foreign banks

Indonesia Coal Mining Sector

Figure 12: Mining sector lending in comparison to total loans

Source: Bank Indonesia, Credit Suisse estimates

Figure 13: Mining companies borrowing

Source: Company data, Credit Suisse

Source: Company data, Credit Suisse estimates

Indonesia Coal Mining Sector

Indonesian coal companies remain profitable

Coal companies remain profitable at low coal price environment

Source: Company data, Credit Suisse estimates

Indonesia Coal Mining Sector

Coal surplus continues

Figure 18: Seaborne coal importers

Source: MEMR, Credit Suisse estimates

Source: MEMR, Credit Suisse estimates

Indonesia Coal Mining Sector

Figure 20: Seaborne coal surplus

Figure 21: Coal price assumptions

0.0 2012e 2013f 2014f 2015f 2016f

Source: Credit Suisse estimates

Source: Credit Suisse estimates

Indonesia coal price could be under pressure

Indonesia Coal Mining Sector

Increasing regulatory risks