PTBA - Enjoying the ride

• PTBA’s 1H22 net profit jumped 246.1% YoY to Rp6.16tn (+70.6% QoQ in 2Q22) 

• We expect net revenue growth of 37% YoY, EBITDA margin of c. 40% in 2022 

• We reiterate our “BUY” call with 16% upside potential on a 12-month view on strong ASP 

In line with expectation PTBA's net profit skyrocketed 246.1% YoY in 1H22 (70.6% QoQ in 2Q22) to Rp6.16tn , representing 53% of our FY estimate. The impressive bottom line was mainly propped up by increased revenue +79.0% YoY (24.5% QoQ in 2Q22). Despite higher COGS by 49.3% YoY (+11.9% QoQ in 2Q22) due to mining services and royalties, GPM expanded from 34.5% in 1H21 to 45.3% in 1H22. On the other side, PTBA also managed to reduce its operating expenses by 5.1% YoY thanks to lower selling expenses. This also helped EBITDA margin to elevate from 27.3% in 1H21 to 41.6% in 1H22. PTBA also booked a share in net profit of associates/ JV of Rp489bn in 1H22, compared to loss of Rp14.4bn previous year. The company maintains its robust balance sheet with net cash. Bolstered by strong ASP PTBA's stellar performance was mostly propped up by higher ASP by 58.1% YoY to Rp1.25mn/MT (+15.2% QoQ to Rp1.33mn/MT). Furthermore, the company's sales volume also escalated 13.2% YoY to 15mn MT (8.6% QoQ in 2Q22), yet it only accounts for 39.5% of our FY projection. During high coal price, the company has boosted export volume proportion to 35% in 1H22 (38% in 2Q22) with India made up 18% of its deliveries. Production volume grew 19.5% YoY (52.4% QoQ in 2Q22) to 15.9mn MT in 1H22. Meanwhile, the company's cash cost increased by 27.1% YoY to Rp737K/MT (+4.0% QoQ), or remained controllable in our view. Stripping ratio increased to 5.6x in 1H22 mainly in Banko area, yet lower QoQ from 6.3x in 1Q22 to 5.2x in 2Q22. In a bid to maintain robust performance We expect PTBA's revenue and net profit of Rp40.1tn and Rp11.8tn in 2022, respectively as we estimate ASP to be at Rp1,100K/MT or c. 8% YoY. This will bring EBITDA margin to be c. 40% in 2022. Despite higher HBA MoM at USD321.6/MT, we estimate coal price increase is likely to plateau, as China has started to ramp up coal production by 18.7% MoM in August. In addition, China's recovery slow down coupled with aggressive monetary tightening in most developed countries will continue to hamper price increase. However, we also note that coal demands will tend to increase in 2H22 as northern hemisphere countries tend to pile up entering winter season followed by cuts in gas supply from Russia. Meanwhile, we view that higher royalties are insignificant to its bottom line, especially during strong coal price. Furthermore, we are still bullish with PTBA's DME project over the long run. We are waiting for clarity over BLU scheme, although in the surface, it may benefit coal producers with higher domestic sales portion. Reiterate BUY on the back of high ASP amid strong demand We maintain our BUY call with a DCF-based price target of Rp4,950/share. The stock is currently traded at a 2022F PER of 4.8x and EV/EBITDA of 3.6x. We highlight several paramount catalysts including 1) strong demand for LCV; 2) expansions to coal gasification project and Mine Mouth PLTU Sumsel 8; and 3) solid balance sheet with net cash position. Nevertheless, we note several downside risks to our recommendation, namely 1) flattish demand from China due to its recovery slow down ; 2) impending FFR hikes; 3) global transition to renewable energy and 4) change in government policies.