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DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOROTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 USDisclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION

Client-Driven Solutions, Insights, and Access

23 July 2013

Asia Pacific/Indonesia

Equity Research

Diversified Metals & Mining

Indonesia Coal Mining SectorSECTOR REVIEW

Streak of misfortunes

Figure 1: Bukit Asam to grow faster than Indonesias coal output

-

5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

400

450

500

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)

Source: Company data, Credit Suisse estimates

The coal sector faces a structural issue. The coal mining sector has beenunder 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 priceassumption of US$100/tonne.

But all is not lost; Bukit Asam is the stand out top pick. Despite thestructural 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 of10.0x 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.

Research Analysts

Ami Tantri

62 21 2553 7976

[email protected]

Paworamon (Poom) Suvarnatemee, CFA

66 2 614 6210

[email protected]

Contribution by: Anindito Widyanarendra

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23 July 2013

Indonesia Coal Mining Sector 2

Focus charts and tableFigure 2: Underperforming on flat coal price Figure 3: P/E relative to JCIUnderperforming

x

50

70

90

110

130

150

170

190

210

-50%

0%

50%

100%

150%

200%

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US$/tonne

Coal co Coal price (RHS)

-

20

40

60

80

100

120

140

160

180

200

(0.6)

(0.4)

(0.2)

-

0.2

0.4

0.6

0.8

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US$/tonne

(x)

Indo Coal PE rel. To JCI Coal price (RHS)

Source: Bloomberg Source: Bloomberg, Credit Suisse research

Figure 4: Indonesias coal outputMillion tonnes

Figure 5: Coal price assumptionsUS$/tonne

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5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

400

450

500

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)

95

91

87

80

85 86

90 90 90

95

91

100102

105

100

70

75

80

85

90

95

100

105

110

2012

1Q13F

2Q13F

3Q13F

4Q13F

2013F

1Q14F

2Q14F

3Q14F

4Q14F

2014F

2015F

2016F

2017F

LT

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Figure 6: Valuation comparisonPrice TP Upside Mkt Cap P/E (x) EV/EBITDA (x) EPS growth Div. Yield EV/reserve

Ticker Rtg (local) (local) % (US$ mn) 13E 14E 13E 14E 13E 14E 13E 14E

Coal 10.6 8.5 5.9 4.8 -30% 25% 5% 7%ADRO.JK N 700 900 29% 2,226 7.4 6.5 4.4 4.2 -22% 14% 4% 5% 3.4

PTBA.JK O 11,500 17,000 48% 2,634 10.1 8.3 6.1 4.7 -9% 21% 6% 7% 1.2

ITMG.JK N 26,000 26,000 0% 2,920 13.0 10.4 7.1 5.6 -48% 25% 7% 8% 6.6

HRUM.JK N 2,800 3,500 25% 752 13.0 7.7 5.6 3.7 -56% 68% 4% 6% 2.8


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Streak of misfortunesIndonesian 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.

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 long-term coal price assumption of US$100/tonne. (Please see Commodities Forecast Update:

The Return of Fundamentals, 25 June 2013)

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.

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 stayat 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).

Large coal companies

remain profitable and plan to

grow their output.

We assume coal price of

$86/t for 2013 and $91/t for

2014

Increasing regulatory risk

from potential China ban

and royalty rate increase for

IUP holders.

Bukit Asam is our top pick in

the coal sector
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IndonesiaCoalMiningSector

4

Figure 7: Regional comparisonPrice TP Upside Mkt Cap PE (x) EV/EBITDA (x) EPS growth Div. Yield N.Debt/Equity (%)

Company Ticker Rtg (local) (local) % (US$ mn) 13E 14E 13E 14E 13E 14E 13E 14E 13E 14E

Indonesia coal 10.6 8.5 5.9 4.8 -30% 25% 5% 7% 13.76 9.68PT Adaro Energy Tbk ADRO.JK N 700 900 29% 2,226 7.4 6.5 4.4 4.2 -22% 14% 4% 5% 52.76 37.10

PT Tambang BatubaraBukit Asam Tbk

PTBA.JKO 11,500 17,000 48% 2,634 10.1 8.3 6.1 4.7 -9% 21% 6% 7% no debt no debt

PT Indo Tambangraya

Megah

ITMG.JKN 26,000 26,000 0% 2,920 13.0 10.4 7.1 5.6 -48% 25% 7% 8% no debt no debt

PT Harum Energy Tbk HRUM.JK N 2,800 3,500 25% 752 13.0 7.7 5.6 3.7 -56% 68% 4% 6% no debt no debtRegional coal 8.5 7.6 5.2 4.5 -36% 14% 4% 4% 43.13 42.19

China Shenhua EnergyCompany Limited

1088.HKO 22.35 34.90 56% 57,298 7.8 6.9 4.2 3.7 -8% 13% 4% 5% 6.94 no debt

Yanzhou Coal Mining Co. 1171.HK U 5.59 6.60 18% 3,544 8.4 6.6 5.2 4.1 -58% 26% 4% 5% 75.37 75.30

China Coal Energy Co. 1898.HK N 4.07 5.90 45% 6,956 8.1 7.3 5.7 4.8 -40% 11% 3% 3% 42.70 45.03

BHP Billiton BHP.AX N 34.12 34.00 0% 161,210 13.1 14.4 6.4 6.8 -25% -9% 4% 4% 38.94 40.05Rio Tinto RIO.AX O 56.55 68.00 20% 85,626 11.5 13.0 5.7 6.2 -10% -12% 3% 4% 32.51 34.44

Whitehaven Coal WHC.AX O 2.19 3.30 51% 2,068 (38.2) (868.3) 306.8 20.3 -157% 96% 0% 0% 15.10 28.54

Anglo American Plc AAL.L N 1379 1,600 16% 29,353 14.9 14.9 5.1 5.2 222% 0% 4% 4% 29.43 35.43


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Indonesian coal companies plan togrow outputStill 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 coalproducers should still be profitableat 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 13Million tonnes

Figure 9: Indonesias coal outputMillion tonnes

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10

15

20

25

30

35

40

45

50


0

50

100

150

200

250

300

350

400

450

500

2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f

Export by Major Export by Minor Domestic by Major Domestic by Minor

Source: Bank Indonesia; CS comment: Data include lignite Source: Custom data, Credit Suisse estimates

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

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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 primarilyconsists 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 consumptionMillion tonnes

Figure 11: Indonesias coal export destination in 2012

0

10

20

30

40

50

60

70

80

90

1998 2000 2002 2004 2006 2008 2010 2012e

Power plants Cement Metallurgy, fertiliser, pulp/paper, others

Japan

9%

Hong Kong

3%

South Korea

10%

Taiwan8%

China

30%

Thailand

4%

Philippines

3%

Malaysia

4%

Viet Nam0%

India

25%

Others

4%

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%.

Domestic coal consumption

to increase slowly, mostly to

power plants

Local banks have small

exposure to the mining

sector

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Figure 12: Mining sector lending in comparison to total loans

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

BCA B Mandiri BNI BRI B Danamon NPL (RHS)

Source: Bank Indonesia, Credit Suisse estimates

Figure 13: Mining companies borrowingLenders/borrowing

Adaro Syndicated loans of foreign banks; senior notes

ABM Bonds, Sukuk, foreign banks, local bank is Bank Mandiri

Antam Mostly from foreign banks and bonds. Local bank is BRI

Bukit Asam Working capital loan from BNI, Bank Mandiri, and Bank Permata

Delta Dunia Senior notes. Mostly foreign banks

Indika Mostly foreign banks; Senior notes. Local banks include BII, B. Permata, Danamon,

BTN, BPD West Java

United Tractors 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 equityx

Code 2010 2011 2012 2013 2014

Adaro ADRO.JK 0.5 0.6 0.6 0.5 0.3

Harum Energy HRUM.JK no debt no debt no debt no debt no debt

Indika Energy INDY.JK 0.5 0.7 0.7 0.5 0.3

Indotambang ITMG.JK no debt no debt no debt no debt no debt

Bukit Asam PTBA.JK no debt no debt no debt no debt no debtSource: Company data, Credit Suisse estimates

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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 low-grade 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 costUS$/tonne

Company Calorific value (kcal/kg)

4000-4700 4700-5300 5000-6000 6000-6500 >6500

Est. Price at US$76/t Newcastle benchmark 4856 5663 6072 7278 >78

Adaro 38.8 38.8 n.a. n.a. n.a.Bukit Asam n.a. n.a. 45.5 45.5 45.5

Harum n.a. n.a. n.a. 57.1 n.a.

Indotambang n.a. n.a. 45.0 54.3 63.5

Kideco (INDY) n.a. 33.4 n.a. n.a. n.a.


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/tonneChange (%) Base If coal price stays at $76/t

ASP Net Income TP ASP (US$/t) Net Income TP (Rp) ASP Net Income TP (Rp)

Adaro ($ mn) -16% -78% -78% 62 345 900 52 75 200

Bukit Asam (Rp bn) -16% -48% -47% 69 3,193 17,000 58 1,668 9,000

Harum ($ mn) -16% -104% -103% 71 97 3,500 59 (4) -100

Indotambang ($ mn) -13% -75% -23% 80 282 26,000 69 72 20,000

Indika ($ mn) -16% -77% -100% 58 98 900 49 23 0


Coal companies remain

profitable at low coal price

environment

Indonesian coal companies

remain profitable even in a

low coal price environment

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Coal surplus continuesExpecting 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 infrastructureto 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 exportersMillion tonnes

Figure 18: Seaborne coal importersMillion tonnes

0

100

200

300

400

500

600

700

800

900

1,000

2007 2008 2009 2010 2011 2012e 2013f 2014f 2015f 2016f

Indonesia Australia Russia South Africa

Colombia North America RoW

0

100

200

300

400

500

600

700

800

900

1,000

2007 2008 2009 2010 2011 2012e 2013f 2014f 2015f 2016f

China India Japan, Korea, Taiwan Europe RoW

Source: MEMR, Credit Suisse estimates Source: MEMR, Credit Suisse estimates

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,

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 theirvolume

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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 assumptionsUS$/tonne

2012A 2013F 2014F 2015F 2016F 2017F Long-term

New 95 86 91 100 102 105 100

Old 95 90 93 100 102 105 100

Change 0% -5% -2% 0% 0% 0% 0%

Source: Credit Suisse estimates

Figure 20: Seaborne coal surplusMillion tonnes

Figure 21: Coal price assumptionsUS$/tonne

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2012e 2013f 2014f 2015f 2016f

95

91

87

80

85 86

90 90 90

95

91

100 102

105

100

70

75

80

85

90

95

100

105

110

2012

1Q13F

2Q13F

3Q13F

4Q13F

2013F

1Q14F

2Q14F

3Q14F

4Q14F

2014F

2015F

2016F

2017F

LT

Source: Credit Suisse estimates Source: Credit Suisse estimates

The ban from China on low-quality coal import could potentially take out around 100140

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 low-

grade 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

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Increasing regulatory risksRisk 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 destinationsMillion tonnes

Figure 23: Increasing coal exports to ChinaMillion tonnes

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011 2012

Japan HK S.Korea Taiwan China

India Thailand Philippines Malaysia Others

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

140

2007 2008 2009 2010 2011 2012

Export to China (mn t) Portion export to China (%)

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.

There have been talks that

China would restrict low-

quality thermal coal imports

Bukit Asam, Indotambang,

and Harum have high-grade

coal

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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 low-

quality 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 ChinaAdaro Bukit Asam Harum Indika (Kideco) Indotambang

Average grade kcal/kg 40005000 6100 5500 46504700 53007300

Sales portion to China FY12 % 6% 11% 30% 23% 26%

Export volume to China mt 2.9 1.7 3.7 7.9 7.0

Sulphur content % 0.10.4 0.51.2

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Figure 25: Royalty for coal miningType Royalty Corporate tax

Coal contract of work (CCOW)

Generation 1 13.5% 45%

Generation 2-3 13.5% 25%

IUP/KP: Open pit mining

< 5,100 kcal/kg 3% 25%

5,100 - 6,100 kcal/kg 3% 25%> 6,100 kcal/kg 7% 25%

IUP/KP: Underground mining

< 5,100 kcal/kg 2% 25%

5,100 - 6,100 kcal/kg 4% 25%

> 6,100 kcal/kg 6% 25%

Source: Ministry of Energy and Mineral Resources

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 heldCompany Concession License Production (mn tonnes

Name Type Expiry 2013 2014

Indo Indominco CCOW1 2030 14.0 14.5

Tambangraya Trubindo CCOW2 2035 8.0 8.0

Jorong CCOW2 2035 1.1 1.1

Bharinto CCOW3 2027 2.1 3.0

Kitadin IUP n.a. 3.9 3.5

Total 29.1 30.1

Bukit Asam Tanjung Enim, Banko, Peranap IUP 20192035 18.0 20.0

Total 18.0 20.0

Harum Mahakam Sumber Jaya CCOW3 2034 10.0 12.0

Santan Batubara CCOW3 2038 2.4 2.5Tambang Batubara Harum IUP n.a. - 0.5

Total 12.4 15.0

Adaro Tutupan+Paringin CCOW1 2022 39.6 39.6

Wara CCOW2 2022 10.3 12.3

MIP IUP n.a. - 0.5

Total 49.9 52.4

Indika Kideco CCOW1 2023 37.0 38.0

Santan Batubara CCOW3 2038 2.4 2.5

Total 39.4 40.5

Source: Company data

Ministry of Finance

proposes to increase royalty

fee for IUP holders to1013.5%

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Stock pick: We prefer Bukit AsamUnder pressure in deteriorating coal priceenvironment

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 thedecline 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%

Figure 28: P/E relative to JCIUnderperforming

(69.2)

(61.9)

(50.8)(48.6)

(33.7)(29.5) (28.4)

(27.4)(23.9)

(21.6)

(13.4)

(80.0)

(70.0)

(60.0)

(50.0)

(40.0)

(30.0)

(20.0)

(10.0)

-

DOID

IJ

INDYIJ

HRUMIJ

ADROIJ

AvgCoal

AvgContractor

ITMGIJ

UNTR

IJ

ABMMIJ

PTBAIJ

Coalprice

-

20

40

60

80

100

120

140

160

180

200

(0.6)

(0.4)

(0.2)

-

0.2

0.4

0.6

0.8


US$/tonne

(x

)

Indo Coal PE rel. To JCI Coal price (RHS)

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 asthey 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 Figure 30: Underperforming JCI

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500-100%

-50%

0%

50%

100%

150%

200%

250%

1/4/2008 1/4/2009 1/4/2010 1/4/2011 1/4/2012 1/4/2013

Rp/USD

Coal rel. perf to JCI Coal abs performance IDR

50

70

90

110

130

150

170

190

210

-50%

0%

50%

100%

150%

200%

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US$/tonne

Coal co Coal price (RHS)

Source: Bloomberg Source: Bloomberg

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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 changesTP (Rp) Changes in earnings (%)

Company New Old Change (%) 13E 14E 15E

Adaro 900 1,200 (25.0) (8.8) (13.0) (3.4)

Bukit Asam 17,000 18,000 (5.6) (12.5) (6.0) 1.9

Harum 3,500 3,800 (7.9) (27.4) (12.6) (0.4)

Indotambang 26,000 36,000 (30.6) (32.3) (27.9) n/a

Source: Credit Suisse estimates,

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 earlierto 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 comparisonPrice TP Upside Mkt Cap P/E (x) EV/EBITDA (x) EPS growth Div. Yield EV/reserve

Ticker Rtg (local) (local) % (US$ mn) 13E 14E 13E 14E 13E 14E 13E 14E

Coal 10.6 8.5 5.9 4.8 -30% 25% 5% 7%

ADRO.JK N 700 900 29% 2,226 7.4 6.5 4.4 4.2 -22% 14% 4% 5% 3.4

PTBA.JK O 11,500 17,000 48% 2,634 10.1 8.3 6.1 4.7 -9% 21% 6% 7% 1.2

ITMG.JK N 26,000 26,000 0% 2,920 13.0 10.4 7.1 5.6 -48% 25% 7% 8% 6.6

HRUM.JK N 2,800 3,500 25% 752 13.0 7.7 5.6 3.7 -56% 68% 4% 6% 2.8


Our top pick: Bukit Asam

Adaro exposed more to

Chinas ban on low-quality

coal
https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&document_section=1&document_id=805424220https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&document_section=1&document_id=805424220https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&document_section=1&document_id=805424220https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&document_section=1&document_id=805424220https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&document_section=1&document_id=805424220

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Figure 33: Positives and negativesPositives Negatives

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

Cost relative to price, lowest operating cash margin Higher balance sheet risk with net debt to equity of

50%

Bukit Asam (PTBA) 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 plantprojects for future growth

Large reserves for over 100 years

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 theexport market

Harum (HRUM) High-grade coal Strong volume growth from small operations Net cash position, no debt

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 onexploration or acquistion to increase reserves

Indotambang (ITMG) High-grade coal Strong volume growth More efficient operation with installation of conveyer

belts

Good bargaining power for their coal, consideringthe size

Net cash position, no debt, high dividend yield

Concern on whether the price could be sustainable Reserves life although more than 10 years, but

relatively shortneeds to spend more capex forexploration

Source: Company data, Credit Suisse research

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Asia Pacific / Indonesia


PT Adaro Energy Tbk(ADRO.JK / ADRO IJ)

DECREASE TARGET PRICE

Cost reduction programme continues

Efficiency priced in: We retain our NEUTRAL rating on Adaro with a newtarget price of Rp900/sh (down from Rp1,200/sh earlier). We are positive on

the companys cost efficiency programmes and volume growth. The low-

grade 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 byimproving 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 existingoperations 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 201314earnings 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-than-

expected coal price, volumes and higher-than-expected costs.

Share price performance

20

70

120

0

1000

20003000

4000

Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13

Price (LHS) Rebased Rel (RHS)

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 1M 3M 12MAbsolute (%) -15.7 -42.6 -50.7Relative (%) -19.3 -36.7 -65.4

Financial and valuation metrics

ear 12/12A 12/13E 12/14E 12/15ERevenue (US$ mn) 3,722.5 3,362.7 3,589.7 4,100.4EBITDA (US$ mn) 1,129.2 942.1 1,003.5 1,301.7

EBIT (US$ mn) 869.6 675.8 733.9 1,029.6Net profit (US$ mn) 385.3 302.2 344.7 522.8EPS (CS adj.) (US$) 0.01 0.01 0.01 0.02Change from previous EPS (%) n.a. -8.8 -13.0 -3.4Consensus EPS (US$) n.a. 0.01 0.01 0.01EPS growth (%) -30.0 -21.6 14.1 51.7P/E (x) 5.8 7.4 6.5 4.3Dividend yield (%) 5.3 4.1 4.6 7.0EV/EBITDA (x) 3.7 4.1 3.5 2.3P/B (x) 0.87 0.81 0.74 0.65ROE (%) 15.4 11.4 12.0 16.3Net debt/equity (%) 65.0 52.8 37.1 18.3Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating NEUTRAL* [V]Price (22 Jul 13, Rp) 700.00Target price (Rp) (from 1,200.00) 900.00Upside/downside (%) 28.6Mkt cap (Rp mn) 22,390,173 (US$

Enterprise value (US$ mn) 3,903Number of shares (mn) 31,985.96Free float (%) 40.052-week price range 1,750.0 - 690.0ADTO - 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).

Research Analysts

Ami Tantri

62 21 2553 7976

[email protected]

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PT Adaro Energy Tbk ADRO.JK / ADRO IJPrice (22 Jul 13): Rp700.00, Rating:: NEUTRAL [V], Target Price: Rp900.00, Analyst: Ami Tantri

Target price scenarioScenario TP %Up/Dwn AssumptionsUpside 990.00 43.42Central Case 900.00 28.57 8x FY14E PEDownside 810.00 17.35

Key earnings drivers 12/12A 12/13E 12/14E 12/15EThermal coal price 95.0 86.0 91.0 100.0Average selling price 70.7 60.8 62.1 68.2Sales volume (Mn t) 48.6 53.0 55.5 58.1

Income statement (US$ mn) 12/12A 12/13E 12/14E 12/15ESales revenue 3,722 3,363 3,590 4,100Cost of goods sold 2,680 2,514 2,683 2,892SG&A 173.1 173.1 173.1 178.3Other operating exp./(inc.) (259.6) (266.3) (269.6) (272.1)EBITDA 1,129 942 1,004 1,302Depreciation & amortisation 259.6 266.3 269.6 272.1EBIT 870 676 734 1,030Net interest expense/(inc.) 107.2 113.9 95.0 68.7Non-operating inc./(exp.) (48.6) (15.4) (15.4) (15.4)Associates/JV Recurring PBT 713.7 546.5 623.4 945.5Exceptionals/extraordinaries Taxes 330.4 245.9 280.5 425.5Profit after tax 383.3 300.6 342.9 520.0Other after tax income Minority interests (2.0) (1.6) (1.8) (2.8)Preferred dividends Reported net profit 385.3 302.2 344.7 522.8

Analyst adjustments Net profit (Credit Suisse) 385.3 302.2 344.7 522.8

Cash flow (US$ mn) 12/12A 12/13E 12/14E 12/15EEBIT 870 676 734 1,030Net interest (107.2) (113.9) (95.0) (68.7)Tax paid (330.4) (245.9) (280.5) (425.5)Working capital (212.7) 3.3 (32.9) (62.4)Other cash & non-cash items 213.5 266.3 269.6 272.1Operating cash flow 432.7 585.6 595.0 745.2Capex (484.3) (200.0) (100.0) (75.0)Free cash flow to the firm (51.6) 385.6 495.0 670.2Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow (484.3) (200.0) (100.0) (75.0)Equity raised Dividends paid (226.0) (117.1) (90.6) (103.4)

Net borrowings 250.7 (215.4) (206.1) (208.4)Other financing cash flow Financing cash flow 24.8 (332.5) (296.8) (311.8)Total cash flow (26.8) 53.1 198.3 358.4Adjustments Net change in cash (26.8) 53.1 198.3 358.4

Balance sheet (US$ mn) 12/12A 12/13E 12/14E 12/15ECash & cash equivalents 500 553 752 1,110Current receivables 474.0 428.2 457.1 522.1Inventories 64.5 60.5 64.6 69.6Other current assets 375.0 375.0 375.0 375.0Current assets 1,414 1,417 1,648 2,077Property, plant & equip. 3,696 3,630 3,461 3,263Investments 393.6 393.6 393.6 393.6Intangibles 1,022 1,007 991 976Other non-current assets 166.1 166.1 166.1 166.1Total assets 6,692 6,614 6,660 6,876Accounts payable 352.7 330.8 353.1 380.7Short-term debt 300.1 300.1 300.1 300.1

Current provisions Other current liabilities 246.5 221.8 199.7 179.7Current liabilities 899.2 852.7 852.8 860.4Long-term debt 2,146 1,930 1,724 1,516Non-current provisions Other non-current liab. 652.1 652.1 652.1 652.1Total liabilities 3,697 3,435 3,229 3,028Shareholders' equity 2,559 2,744 2,998 3,418Minority interests 436.1 434.5 432.7 429.9Total liabilities & equity 6,692 6,614 6,660 6,876

Per share data 12/12A 12/13E 12/14E 12/15EShares (wtd avg.) (mn) 31,986 31,986 31,986 31,986EPS (Credit Suisse) 0.01 0.01 0.01 0.02DPS (US$) 0.000 0.000 0.000 0.000BVPS (US$) 0.08 0.09 0.09 0.11Operating CFPS (US$) 0.01 0.02 0.02 0.02

Key ratios andvaluation

12/12A 12/13E 12/14E 12/15E

Growth(%)Sales revenue (6.6) (9.7) 6.8 14.2EBIT (32.3) (22.3) 8.6 40.3Net profit (30.0) (21.6) 14.1 51.7EPS (30.0) (21.6) 14.1 51.7Margins (%)EBITDA 30.3 28.0 28.0 31.7EBIT 23.4 20.1 20.4 25.1Pre-tax profit 19.2 16.3 17.4 23.1Net profit 10.4 9.0 9.6 12.8Valuation metrics (x)

P/E 5.78 7.37 6.46 4.26P/B 0.87 0.81 0.74 0.65Dividend yield (%) 5.26 4.07 4.65 7.05P/CF 5.14 3.80 3.74 2.99EV/sales 1.12 1.16 0.97 0.71EV/EBITDA 3.69 4.14 3.49 2.25EV/EBIT 4.80 5.77 4.77 2.85ROE analysis (%)ROE 15.4 11.4 12.0 16.3ROIC 10.5 7.6 8.4 12.2Asset turnover (x) 0.56 0.51 0.54 0.60Interest burden (x) 0.82 0.81 0.85 0.92Tax burden (x) 0.54 0.55 0.55 0.55Financial leverage (x) 2.23 2.08 1.94 1.79Credit ratiosNet debt/equity (%) 65.0 52.8 37.1 18.3Net debt/EBITDA (x) 1.72 1.78 1.27 0.54Interest cover (x) 8.1 5.9 7.7 15.0

Source: Company data, Thomson Reuters, Credit Suisse estimates.

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012

12MF P/E multiple

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2008 2009 2010 2011 2012

12MF P/B multiple

Source: IBES

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PT Harum Energy Tbk(HRUM.JK / HRUM IJ)


Need to increase reserves

Strong volume growth, but low reserves: Harum recorded strong volumegrowth 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 endof 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 estimatesdownwards 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.


20

70

120

2000

40006000

8000

10000





On 22/07/13 the spot exchange rate was Rp10060./US$1



ear 12/12A 12/13E 12/14E 12/15ERevenue (US$ mn) 1,043.3 893.4 1,139.4 1,502.9EBITDA (US$ mn) 223.1 104.3 157.7 275.2EBIT (US$ mn) 211.5 98.9 142.6 244.3

Net profit (US$ mn) 131.6 57.6 97.1 179.4EPS (CS adj.) (US$) 0.05 0.02 0.04 0.07Change from previous EPS (%) n.a. -27.4 -12.6 -0.4Consensus EPS (US$) n.a. 0.04 0.04 0.05EPS growth (%) -20.8 -56.2 68.5 84.7P/E (x) 5.7 13.0 7.7 4.2Dividend yield (%) 9.7 3.8 6.5 11.9EV/EBITDA (x) 2.6 3.1 1.6 0.4P/B (x) 2.1 1.3 1.2 1.0ROE (%) 38.6 12.4 15.8 25.2Net debt/equity (%) net cash net cash net cash net cashSource: Company data, Thomson Reuters, Credit Suisse estimates.

Rating NEUTRALPrice (22 Jul 13, Rp) 2,800.00Target price (Rp) (from 3,800.00) 3,500.00 Upside/downside (%) 25.0Mkt cap (Rp mn) 7,570,136.0 (US$

Enterprise value (US$ mn) 326.40Number of shares (mn) 2,703.62Free float (%) 29.852-week price range 6,600.0 - 2,800.0ADTO - 6M (US$ mn) 2.9



Target price is for 12 months.

Research Analysts

Ami Tantri

62 21 2553 7976

[email protected]

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PT Harum Energy Tbk HRUM.JK / HRUM IJPrice (22 Jul 13): Rp2,800.00, Rating:: NEUTRAL, Target Price: Rp3,500.00, Analyst: Ami Tantri

Target price scenarioScenario TP %Up/Dwn AssumptionsUpside 3,850.00 39.44Central Case 3,500.00 25.00 Our TP is based on 10x PE of FY 14EDownside 3,150.00 14.09

Key earnings drivers 12/12A 12/13E 12/14E 12/15EThermal coal price 96.0 86.0 91.0 100.0Average Selling Price 82.7 66.7 70.6 77.5Production volume incl. 10.6 11.2 14.0 17.7

Income statement (US$ mn) 12/12A 12/13E 12/14E 12/15ESales revenue 1,043 893 1,139 1,503Cost of goods sold 724 698 879 1,110SG&A 107.5 96.3 117.6 148.6Other operating exp./(inc.) (8.7) (9.2) (9.7) (10.2)EBITDA 223.1 104.3 157.7 275.2Depreciation & amortisation 8.7 9.2 9.7 10.2EBIT 211.5 98.9 142.6 244.3Net interest expense/(inc.) (1.1) (14.7) (23.2) (28.4)Non-operating inc./(exp.) (2.4) Associates/JV 2.9 (3.7) 5.4 20.7Recurring PBT 213.0 109.9 171.2 293.5Exceptionals/extraordinaries Taxes 51.3 26.5 41.3 70.7Profit after tax 161.7 83.4 129.9 222.7Other after tax income Minority interests 30.1 25.7 32.8 43.3Preferred dividends Reported net profit 131.6 57.6 97.1 179.4

Analyst adjustments Net profit (Credit Suisse) 131.6 57.6 97.1 179.4

Cash flow (US$ mn) 12/12A 12/13E 12/14E 12/15EEBIT 211.5 98.9 142.6 244.3Net interest (2.5) 14.7 23.2 28.4Tax paid (75.5) (26.5) (41.3) (70.7)Working capital (49.5) 10.4 (20.2) (29.0)Other cash & non-cash items 28.2 9.2 9.7 10.2Operating cash flow 112.1 106.7 114.0 183.2Capex (18.1) (15.0) (15.0) (15.0)Free cash flow to the firm 94.0 91.7 99.0 168.2Disposals of fixed assets Acquisitions Divestments (1.7) Associate investments Other investment/(outflows) 3.2 4.3 16.6Investing cash flow (16.6) (15.0) (10.7) 1.6Equity raised 0.0 241.1 Dividends paid (116.0) (69.9) (28.8) (48.6)

Net borrowings (0.23) Other financing cash flow (0.06) Financing cash flow (116.3) 171.2 (28.8) (48.6)Total cash flow (20.8) 263.0 74.5 136.2Adjustments Net change in cash (20.8) 263.0 74.5 136.2

Balance sheet (US$ mn) 12/12A 12/13E 12/14E 12/15ECash & cash equivalents 163.1 426.1 500.6 636.8Current receivables 68.2 58.4 74.5 98.3Inventories 101.9 98.2 123.7 156.2Other current assets 2.3 2.3 2.3 2.3Current assets 335.6 585.1 701.1 893.6Property, plant & equip. 122.6 128.4 133.7 138.5Investments 22.3 18.6 19.7 23.8Intangibles Other non-current assets 58.1 58.1 58.1 58.1Total assets 539 790 913 1,114Accounts payable 85.4 82.3 103.6 130.9Short-term debt

Current provisions Other current liabilities 21.8 21.8 21.8 21.8Current liabilities 107.2 104.1 125.4 152.6Long-term debt Non-current provisions Other non-current liab. 2.8 2.8 2.8 2.8Total liabilities 110.0 106.9 128.3 155.5Shareholders' equity 349.8 578.7 647.0 777.9Minority interests 78.8 104.6 137.4 180.7Total liabilities & equity 539 790 913 1,114



12/12A 12/13E 12/14E 12/15E

Growth(%)Sales revenue 25.5 (14.4) 27.5 31.9EBIT (17.0) (53.3) 44.3 71.3Net profit (20.8) (56.2) 68.5 84.7EPS (20.8) (56.2) 68.5 84.7Margins (%)EBITDA 21.4 11.7 13.8 18.3EBIT 20.3 11.1 12.5 16.3Pre-tax profit 20.4 12.3 15.0 19.5Net profit 12.6 6.5 8.5 11.9Valuation metrics (x)

P/E 5.7 13.0 7.7 4.2P/B 2.15 1.30 1.16 0.97Dividend yield (%) 9.7 3.8 6.5 11.9P/CF 6.70 7.04 6.59 4.10EV/sales 0.56 0.37 0.22 0.08EV/EBITDA 2.64 3.13 1.60 0.42EV/EBIT 2.79 3.30 1.77 0.47ROE analysis (%)ROE 38.6 12.4 15.8 25.2ROIC 68.3 28.7 40.0 61.2Asset turnover (x) 1.94 1.13 1.25 1.35Interest burden (x) 1.01 1.11 1.20 1.20Tax burden (x) 0.76 0.76 0.76 0.76Financial leverage (x) 1.26 1.16 1.16 1.16Credit ratiosNet debt/equity (%) (38.1) (62.4) (63.8) (66.4)Net debt/EBITDA (x) (0.73) (4.08) (3.17) (2.31)Interest cover (x) (196) (7) (6) (9)


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Non Ferrous Metals

PT Indo Tambangraya Megah(ITMG.JK / ITMG IJ)


High dividend with limited downside

Lower coal prices and higher cost assumptions: Our earnings forecastsfor 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% toour 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 hasset 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 coalprices 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 cashposition. Banpu, ITMGs 65% shareholder, also needs cash to fund 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.


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Performance Over 1M 3M 12MAbsolute (%) 2.0 -32.5 -30.8Relative (%) -1.7 -26.5 -45.4


ear 12/12A 12/13E 12/14E 12/15ERevenue (US$ mn) 2,438.9 2,223.7 2,421.7 2,616.2EBITDA (US$ mn) 613.2 347.4 437.1 509.0EBIT (US$ mn) 550.9 279.8 367.0 436.5Net profit (US$ mn) 432.0 224.9 281.6 335.6EPS (CS adj.) (US$) 0.38 0.20 0.25 0.30Change from previous EPS (%) n.a. -25.6 -19.5Consensus EPS (US$) n.a. 0.28 0.30 0.32EPS growth (%) -20.9 -47.9 25.2 19.2P/E (x) 6.8 13.0 10.4 8.7Dividend yield (%) 12.4 6.5 8.2 9.8EV/EBITDA (x) 4.0 7.7 5.9 4.9P/B (x) 2.9 3.4 3.1 2.8ROE (%) 41.5 24.2 31.1 33.6Net debt/equity (%) net cash net cash net cash net cashSource: Company data, Thomson Reuters, Credit Suisse estimates.

Rating NEUTRALPrice (22 Jul 13, Rp) 26,000Target price (Rp) (from 36,000) 26,000Upside/downside (%) Mkt cap (Rp mn) 29,378,050 (US$

Enterprise value (US$ mn) 2,668Number of shares (mn) 1,129.92Free float (%) 35.052-week price range 42,700.0 - 25,050.0ADTO - 6M (US$ mn) 3.7




Research Analysts

Paworamon (Poom) Suvarnatemee, CFA

66 2 614 6210

[email protected]

Wattana Punyawattanakul

66 2 614 6215

[email protected]

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PT Indo Tambangraya Megah ITMG.JK / ITMG IJPrice (22 Jul 13): Rp26,000, Rating:: NEUTRAL, Target Price: Rp26,000, Analyst: Paworamon (Poom) Suvarnatemee

Target price scenarioScenario TP %Up/Dwn AssumptionsUpsideCentral Case 26,000.00 0 PE (strip cash) at 12xDownside

Key earnings drivers 12/12A 12/13E 12/14E 12/15EBenchmark coal prices 95.0 85.8 91.2 100.0ASP (USD/t) 89.9 76.1 79.9 83.5

Income statement (US$ mn) 12/12A 12/13E 12/14E 12/15ESales revenue 2,439 2,224 2,422 2,616Cost of goods sold 1,698 1,770 1,878 1,995SG&A 182.7 171.2 173.6 181.0Other operating exp./(inc.) (54.8) (64.5) (66.9) (69.2)EBITDA 613.2 347.4 437.1 509.0Depreciation & amortisation 62.3 67.6 70.1 72.5EBIT 550.9 279.8 367.0 436.5Net interest expense/(inc.) (13.3) (9.3) (7.4) (9.7)Non-operating inc./(exp.) 48.5 10.0 Associates/JV Recurring PBT 612.7 299.1 374.4 446.2Exceptionals/extraordinaries Taxes 159.1 74.2 92.9 110.7Profit after tax 453.6 224.9 281.6 335.6Other after tax income Minority interests Preferred dividends Reported net profit 453.6 224.9 281.6 335.6

Analyst adjustments (21.6) Net profit (Credit Suisse) 432.0 224.9 281.6 335.6

Cash flow (US$ mn) 12/12A 12/13E 12/14E 12/15EEBIT 550.9 279.8 367.0 436.5Net interest 13.3 9.3 7.4 9.7Tax paid (159.1) (74.2) (92.9) (110.7)Working capital (67.4) 14.3 (12.2) (8.7)Other cash & non-cash items 110.9 77.6 70.1 72.5Operating cash flow 448.5 306.8 339.4 399.4Capex (89.3) (148.3) (80.7) (50.6)Free cash flow to the firm 359.2 158.5 258.7 348.8Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow (89.3) (148.3) (80.7) (50.6)Equity raised Dividends paid (505.0) (367.2) (191.2) (239.3)

Net borrowings Other financing cash flow (5.5) Financing cash flow (510.4) (367.2) (191.2) (239.3)Total cash flow (151.2) (208.8) 67.5 109.4Adjustments Net change in cash (151.2) (208.8) 67.5 109.4

Balance sheet (US$ mn) 12/12A 12/13E 12/14E 12/15ECash & cash equivalents 461.2 252.4 320.0 429.4Current receivables 249.2 227.2 247.4 267.3Inventories 151.0 161.4 169.1 179.1Other current assets 107.5 98.0 106.8 115.3Current assets 968.9 739.1 843.3 991.2Property, plant & equip. 335.5 367.7 371.6 362.5Investments Intangibles 1.00Other non-current assets 186.8 238.7 249.1 240.5Total assets 1,491 1,345 1,464 1,595Accounts payable 185.6 198.4 208.0 220.3Short-term debt

Current provisions 44.1 20.6 25.7 30.7Other current liabilities 207.3 211.2 221.0 233.5Current liabilities 437.0 430.2 454.7 484.5Long-term debt Non-current provisions 50.3 53.6 57.3 61.5Other non-current liab. 1.5 1.5 1.5 1.5Total liabilities 488.8 485.3 513.5 547.5Shareholders' equity 1,002 860 950 1,047Minority interests Total liabilities & equity 1,491 1,345 1,464 1,594



12/12A 12/13E 12/14E 12/15E

Growth(%)Sales revenue 2.40 (8.83) 8.90 8.03EBIT (20.3) (49.2) 31.2 19.0Net profit (20.9) (47.9) 25.2 19.2EPS (20.9) (47.9) 25.2 19.2Margins (%)EBITDA 25.1 15.6 18.0 19.5EBIT 22.6 12.6 15.2 16.7Pre-tax profit 25.1 13.4 15.5 17.1Net profit 17.7 10.1 11.6 12.8Valuation metrics (x)

P/E 6.8 13.0 10.4 8.7P/B 2.91 3.40 3.07 2.79Dividend yield (%) 12.4 6.5 8.2 9.8P/CF 6.5 9.5 8.6 7.3EV/sales 1.01 1.20 1.07 0.95EV/EBITDA 4.01 7.68 5.95 4.89EV/EBIT 4.5 9.5 7.1 5.7ROE analysis (%)ROE 41.5 24.2 31.1 33.6ROIC 80.8 36.6 44.6 52.6Asset turnover (x) 1.64 1.65 1.65 1.64Interest burden (x) 1.11 1.07 1.02 1.02Tax burden (x) 0.74 0.75 0.75 0.75Financial leverage (x) 1.49 1.56 1.54 1.52Credit ratiosNet debt/equity (%) (46.0) (29.4) (33.7) (41.0)Net debt/EBITDA (x) (0.75) (0.73) (0.73) (0.84)Interest cover (x) (41.5) (30.2) (49.4) (44.9)


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PT Tambang Batubara Bukit

Asam Tbk (PTBA.JK / PTBA IJ)DECREASE TARGET PRICE

Expansion of railway in progress, higherroyalty could be passed on partially

Our preferred stock:Bukit Asams average selling price relative to its high-grade coal seems to be low, as the company is selling mostly to PLN, thestate-owned power company. However, the company still enjoys cashmargin 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 largereserves having life of over 100 years, there is potential for strong volumegrowth. In the difficult market condition, Bukit Asam is still able to haverelatively strong cash margin. With a bigger size, the company should havebetter barganining power for its export price. The railway projects and minemouth power plan projects are the way to increase volume, although we areconcerned 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. Weexpect the coal price to remain at the current level until end of 2014considering the oversupply situation, before we see some pick up in price.

The company is exposed to the risk of the governments intention to hikeroyalty, although they could pass on the same to PLN.

Our preferred stock in the coal sector: At lower coal price assumptions for201314 and higher royalty fee, we have reduced our 2013-14 earningsestimates by 13 and 6% respectively. This is our preferred stock in thesector. Our revised target price of Rp17,000 (down from Rp18,000 earlier) isbased 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 withupside potential for further improvement.


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ear 12/12A 12/13E 12/14E 12/15ERevenue (Rp bn) 11,594.1 11,877.9 15,302.9 19,124.1

EBITDA (Rp bn) 3,691.6 3,406.8 4,344.6 6,353.6EBIT (Rp bn) 3,593.5 3,252.1 4,166.5 6,152.1Net profit (Rp bn) 2,900.1 2,635.3 3,193.2 4,834.9EPS (CS adj.) (Rp) 1,258.66 1,143.73 1,385.84 2,098.36Change from previous EPS (%) n.a. -12.5 -6.0 1.9Consensus EPS (Rp) n.a. 1,123 1,244 1,454EPS growth (%) -6.0 -9.1 21.2 51.4P/E (x) 9.1 10.1 8.3 5.5Dividend yield (%) 6.0 6.0 7.2 10.9EV/EBITDA (x) 5.6 6.2 4.7 2.9P/B (x) 3.1 2.8 2.4 1.9ROE (%) 35.1 29.5 31.1 38.6Net debt/equity (%) net cash net cash net cash net cashSource: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORMPrice (22 Jul 13, Rp) 11,500Target price (Rp) (from 18,000) 17,000Upside/downside (%) 47.8Mkt cap (Rp bn) 26,497.5 (US$ 2.6)Enterprise value (Rp bn) 21,265Number of shares (mn) 2,304.13Free float (%) 35.052-week price range 16,900.0 - 11,350.0ADTO - 6M (US$ mn) 3.5




Research Analysts

Ami Tantri

62 21 2553 7976

[email protected]

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PT Tambang Batubara Bukit Asam TbkPTBA.JK / PTBA IJPrice (22 Jul 13): Rp11,500, Rating:: OUTPERFORM, Target Price: Rp17,000, Analyst: Ami Tantri

Target price scenarioScenario TP %Up/Dwn AssumptionsUpside 18,700.00 62.61Central Case 17,000.00 47.83Downside 15,300.00 33.04

Key earnings drivers 12/12A 12/13E 12/14E 12/15EAverage Selling Price 80.7 63.9 69.4 76.4Sales Volume (MT) 15.3 18.0 22.0 25.0Thermal coal price 96.0 86.0 91.0 100.0

Income statement (Rp bn) 12/12A 12/13E 12/14E 12/15ESales revenue 11,594 11,878 15,303 19,124Cost of goods sold 6,506 7,200 9,549 11,184SG&A 1,495 1,426 1,587 1,788Other operating exp./(inc.) (98.1) (154.8) (178.1) (201.4)EBITDA 3,692 3,407 4,345 6,354Depreciation & amortisation 98.1 154.8 178.1 201.4EBIT 3,594 3,252 4,167 6,152Net interest expense/(inc.) (324.0) (277.6) (286.2) (363.4)Non-operating inc./(exp.) (42.0) (42.0) (42.0)Associates/JV (5.9) (178.0) (55.0)Recurring PBT 3,912 3,488 4,233 6,418Exceptionals/extraordinaries Taxes 1,002 844 1,029 1,568Profit after tax 2,909 2,644 3,203 4,850Other after tax income Minority interests 9.3 8.5 10.2 15.5Preferred dividends Reported net profit 2,900 2,635 3,193 4,835Analyst adjustments Net profit (Credit Suisse) 2,900 2,635 3,193 4,835

Cash flow (Rp bn) 12/12A 12/13E 12/14E 12/15EEBIT 3,594 3,252 4,167 6,152Net interest 324.0 277.6 286.2 363.4Tax paid (1,002) (844) (1,029) (1,568)Working capital (910.0) 0.7 (326.0) (418.5)Other cash & non-cash items 207.3 154.8 178.1 201.4Operating cash flow 2,213 2,841 3,275 4,730Capex (877) (1,710) (710) (710)Free cash flow to the firm 1,335 1,131 2,565 4,020Disposals of fixed assets Acquisitions Divestments (243.9) (176.6) (0.7) (0.7)Associate investments Other investment/(outflows) (61.2) Investing cash flow (1,182) (1,887) (711) (711)Equity raised Dividends paid (1,616) (1,595) (1,581) (1,916)

Net borrowings Other financing cash flow (288.6) Financing cash flow (1,904) (1,595) (1,581) (1,916)Total cash flow (874) (640) 984 2,104Adjustments Net change in cash (874) (640) 984 2,104

Balance sheet (Rp bn) 12/12A 12/13E 12/14E 12/15ECash & cash equivalents 5,917 5,277 6,260 8,364Current receivables 1,546 1,583 2,040 2,549Inventories 766 848 1,124 1,317Other current assets 489.7 489.7 489.7 489.7Current assets 8,718 8,198 9,914 12,720Property, plant & equip. 1,853 3,399 3,921 4,419Investments Intangibles Other non-current assets 2,157 2,344 2,177 2,132Total assets 12,729 13,940 16,011 19,271Accounts payable 149.8 165.8 219.8 257.5Short-term debt 34.9 34.9 34.9 34.9

Current provisions Other current liabilities 1,586 1,690 2,043 2,289Current liabilities 1,771 1,891 2,298 2,581Long-term debt 9.7 9.7 9.7 9.7Non-current provisions 232.5 274.5 316.5 358.5Other non-current liab. 2,211 2,211 2,211 2,211Total liabilities 4,224 4,386 4,835 5,161Shareholders' equity 8,419 9,459 11,071 13,990Minority interests 86.1 94.5 104.8 120.3Total liabilities & equity 12,729 13,940 16,011 19,271

Per share data 12/12A 12/13E 12/14E 12/15EShares (wtd avg.) (mn) 2,304 2,304 2,304 2,304EPS (Credit Suisse) (Rp) 1,259 1,144 1,386 2,098DPS (Rp) 692 686 832 1,259BVPS (Rp) 3,654 4,105 4,805 6,072Operating CFPS (Rp) 960 1,233 1,422 2,053


12/12A 12/13E 12/14E 12/15E

Growth(%)Sales revenue 9.6 2.4 28.8 25.0EBIT (2.0) (9.5) 28.1 47.7Net profit (6.0) (9.1) 21.2 51.4EPS (6.0) (9.1) 21.2 51.4Margins (%)EBITDA 31.8 28.7 28.4 33.2EBIT 31.0 27.4 27.2 32.2Pre-tax profit 33.7 29.4 27.7 33.6Net profit 25.0 22.2 20.9 25.3Valuation metrics (x)

P/E 9.1 10.1 8.3 5.5P/B 3.15 2.80 2.39 1.89Dividend yield (%) 6.0 6.0 7.2 10.9P/CF 12.0 9.3 8.1 5.6EV/sales 1.78 1.79 1.33 0.95EV/EBITDA 5.59 6.24 4.67 2.86EV/EBIT 5.74 6.54 4.87 2.95ROE analysis (%)ROE 35.1 29.5 31.1 38.6ROIC 133 71 68 86Asset turnover (x) 0.91 0.85 0.96 0.99Interest burden (x) 1.09 1.07 1.02 1.04Tax burden (x) 0.74 0.76 0.76 0.76Financial leverage (x) 1.50 1.46 1.43 1.37Credit ratiosNet debt/equity (%) (69.0) (54.8) (55.6) (59.0)Net debt/EBITDA (x) (1.59) (1.54) (1.43) (1.31)Interest cover (x) (11.1) (11.7) (14.6) (16.9)


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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 Closing Price Target Price

Date (Rp) (Rp) Rating

08-Sep-10 1,940 2,350 O

23-Nov-10 2,425 2,850 N

10-Jan-11 2,500 2,900

07-Mar-11 2,375 2,700

31-Mar-11 2,200 2,600

13-Apr-11 2,275 2,050 U

06-Feb-12 1,940 1,900 N

07-Feb-12 1,980 *

09-Feb-12 1,980 1,900 N

11-Jul-12 1,420 1,600

01-Nov-12 1,370 1,500

16-Apr-13 1,250 1,200

* Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

NEUTRAL

UNDERPERFORM

3-Year Price and Rating History for PT Harum Energy Tbk (HRUM.JK)

HRUM.JK Closing Price Target Price


13-Apr-11 9,150 9,600 N *

06-Feb-12 7,600 10,000 O

07-Feb-12 7,650 *

09-Feb-12 8,100 10,000 O

11-Jul-12 5,850 8,000

14-Sep-12 6,350 R

01-Nov-12 5,250 7,000 O

01-Feb-13 6,150 6,500 N

29-Mar-13 4,800 5,500

16-Apr-13 4,975 4,700

30-Apr-13 4,150 3,800


NEUTRAL

OUTPERFORM

RESTRICTED

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3-Year Price and Rating History for PT Indo Tambangraya Megah (ITMG.JK)

ITMG.JK Closing Price Target Price


23-Nov-10 49,450 63,000 O

25-Feb-11 45,200 54,000

13-Apr-11 48,500 57,000

25-Sep-11 40,650 53,000

02-Nov-11 44,800 55,000

06-Feb-12 39,350 50,000

29-Jun-12 35,950 40,000 N

24-Jul-12 36,450 38,000

24-Oct-12 42,550 41,000

16-Apr-13 38,450 36,000


OUTPERFORM

NEUTRAL

3-Year Price and Rating History for PT Tambang Batubara Bukit Asam Tbk (PTBA.JK)

PTBA.JK Closing Price Target Price


26-Jul-10 16,500 18,400 N

23-Nov-10 20,400 25,600 O

10-Jan-11 22,550 28,200

13-Apr-11 22,100 27,200

02-May-11 22,350 26,500

06-Feb-12 20,300 25,000

07-Feb-12 20,200 *

09-Feb-12 20,950 25,000 O

12-Jul-12 14,900 19,000

16-Apr-13 15,300 18,000


NEUTRAL

OUTPERFORM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse'stotal 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 whichconsists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, andUnderperforms 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 totalreturn relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing themost attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratingsare based on a stocks total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2ndOctober 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiveness of astocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute totalreturn 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% and7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings werebased 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 othercircumstances.

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 24months 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 fundamentals and/orvaluation 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.

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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 cover 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, and Underperform most closelycorrespond 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 todefinitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sectoror themarket 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 referto Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research andanalytics/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 cannotbe 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 sectoraverage.

Risk: Risks to our Rp 900 target price for PT Adaro Energy Tbk are lower than expected volume and price, and possible higher costsconsidering 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 f luctuation 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 otheroperational 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 linewith 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 thecompany'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 thetarget 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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Credit Suisse provided non-investment banking services to the subject company (AAL.L, RIO.AX, BHP.AX, BBNI.JK, BMRI.JK) within the past 12months

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 12months.

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 subj

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