ADRO - Building the New Core: Toward Sustainable Value

KBVS Update
Friday, 14 December 2024

ADRO - Building the New Core: Toward Sustainable Value
(Reinitiate with a BUY; TP: IDR 2,300)

Forging Growth Beyond Coal Following the spin-off of its thermal coal unit (AADI), the company is shifting focus to metallurgical coal, aluminium downstream (via ADMR), and mining services (SIS). A 500,000 tpa aluminium smelter is expected to contribute USD 757mn in 26F and USD1.3 bn by 28F, making up over half of consolidated revenue. We forecast earnings to grow from USD345 mn in 25F to USD495 mn in 28F, with aluminum driving 51% of the upside.

ADMR and SIS are now key earnings pillars Post spin-off, FY24 revenue reached USD2 bn, driven primarily by ADMR (55% contribution) and SIS (41%). ADMR booked USD1.2 bn revenue (+6.3% yoy), supported by strong volume growth despite softer ASPs. SIS revenue soared to USD849 mn on solid operational metrics across overburden removal, hauling, and equipment services. Both segments deliver stable earnings with better margins, as ADRO moves away from legacy coal.

Reinitiate BUY with a TP of IDR2,300/sh, based on SOTP valuation (13x P/E, 0.8x P/B 25F), capturing ADRO’s shift toward a greener and more value-driven portfolio. Aluminum and renewables are set to become the key growth drivers, backed by a solid balance sheet and promising long-term prospects.

Regards, 
Laurencia Hiemas - KBVS Research