ADRO - Expect Earnings to Decline 46.3% yoy in 2024F

KBVS Update
Tueday, 26 Mar 2024

Expect Earnings to Decline 46.2% yoy in 2024F
(SELL - TP: IDR2,320)

FY23 earnings above our and street’s forecast. ADRO’s net profit rose 22.5% qoq in 4Q23 at USD423 mn (-28.3% yoy) mainly due to DMO allowance reversal. This resulted ADRO reporting net profit of USD1,641 mn in 2023, down 34.2% yoy. Despite a 7% increase in sales volume in FY23, revenue dropped by 20% to $6,518 mn due to a 26% decline in the ASP.

Stable sales volume in 2024. The projected guidance for 2024 anticipates a stable sales volume of 65-67 Mt (including ADMR of 4.9-5.4 Mt). The strip ratio is expected to remain flat yoy at 4.3x while the capex guidance for 2024 is at USD600-700 mn, primarily allocated to acquiring heavy equipment, and barges, and enhancing infrastructure along the supply chain. Simultaneously, ADMR initiated investments in an aluminum smelter and its associated facilities. In 2024, we expect a further decline in earnings due to continuously low ASP amid weak coal demand as well as strong domestic coal output in 2024F from Indonesia (+19% yoy). We estimate net profit to decline 46.2% yoy to USD 883 mn.

KAI project continues to advance smoothly. Several milestones have been reached at the industrial park located in North Kalimantan. PT Kalimantan Aluminum Industry (KAI) has successfully concluded soil investigations, executed land leveling procedures, and completed piling work for the baking furnace facilities within the aluminum smelter zone.

Downgrade to SELL with lower TP of IDR2,320 (previously IDR2,780) as we expect bigger capex required in coming years. The valuation is derived from DCF-based TP (WACC: 12.8%; LTG: -5%; and long-term coal price of USD100/ tonne), which implied to 1.4x ’24F EV/EBITDA (-0.3 SD to 5-year mean).

Regards,
Benyamin Mikael -KBVS Research