Commodities│Indonesia│September 16, 2017

Sector Note

▎ Indonesia Coal Mining

Neutral (no change) Positive price outlook meets domestic policy risks
■ We upgrade our FY17/18/19 Newcastle coal price assumptions to US$80/$70/$65
Highlighted companies and expect prices to be supported by limited supply growth and steady demand.
Adaro Energy
■ Domestic pricing policy is an incremental risk and overhang for the sector.
ADD, TP Rp2,030, Rp1,740 close ■ We raise our FY17-19 EPS estimates by 11-36% for coal producers and adjust TPs
ADRO’s strong operating track record on the to reflect the higher EPS and exposure to domestic risk factors.
back of proven cost savings remains a ■ We keep our Add calls on ADRO, UNTR and ITMG but downgrade PTBA to Hold.
comfort. The company’s sales to the domestic
market represent 20% of its total volume. ■ We stay sector Neutral on steady earnings, but valuation is fair given the risks. Our
top picks are ADRO and UNTR.
Bukit Asam
HOLD, TP Rp10,000, Rp9,975 close Steady demand, disrupted supply
PTBA’s large reserve base offers options to Against our expectations, the traditionally soft demand period for coal (in 3Q) failed to
manage margins in a weak market. As a state-
materialise into price corrections. A combination of stable demand (China’s steady
owned company, PTBA is the most vulnerable
to changes in domestic pricing policy given its imports, and new markets offsetting India’s slower demand) and supply disruption (rain
high exposure to domestic sales (45% of in Indonesia and industrial strike in Australia) were the drivers behind the Newcastle coal
volume). index’s surge to above US$95 in recent weeks.
Indo Tambangraya Megah Support remains in place – expect near-term prices to stay high
ADD, TP Rp20,200, Rp19,500 close As China’s domestic policy indicates a stable demand outlook in the short-term, we think
Despite its short reserves lifespan of less than coal price can be sustained at high levels (above US$75/t) in the next 6-9 months due to
eight years, the stock’s high dividend yield limited supply growth in Indonesia. This is predicated on: 1) Indonesian producers’ low
remains attractive. The company’s sales to the inventory levels (at an estimated 1.5-2.5 weeks of sales, the lowest in the past five
domestic market represent around 15% of its years). 2) Producers’ focus on preserving reserves through raising the stripping ratio
total sales volume.
instead of raising coal production. 3) Limited signs of small producers re-emerging.
Domestic market policy overhang
Summary valuation metrics
As noises on potential changes in domestic pricing policy emerge, MEMR’s statement
P/E (x) Dec-17F Dec-18F Dec-19F that economic interests for all parties will not be forgone is a relief for coal miners. Still,
Adaro Energy 8.60 9.44 11.95
we think the latest noise poses an overhang for the sector given: 1) Government’s goal
Bukit Asam 7.57 7.31 6.26
Indo Tambangraya Megah 8.13 9.22 10.04
to lower electricity and energy prices (potentially at the expense of suppliers’ margin). 2)
Recent evidence of PLN exerting its bargaining position as the largest buyer of energy.
P/BV (x) Dec-17F Dec-18F Dec-19F
Adaro Energy 1.22 1.14 1.08
Upgrade coal price assumptions, EPS; new TPs reflect risk factors
Bukit Asam 1.55 1.37 1.19
On the back of our positive market view, we raise our FY17/18/19 Newcastle coal price
Indo Tambangraya Megah 1.66 1.65 1.63 assumption to US$80/$70/$65/t (from US$72/$65/$57/t previously), and accordingly
revise our FY17-19 EPS estimates for coal producers by 11-36%. We adjust target
Dividend Yield Dec-17F Dec-18F Dec-19F prices but assign premium/discounts to our 5-year mean P/E for our target multiples to
Adaro Energy 2.88% 2.62% 2.07% account for risk exposure from domestic policy.
Bukit Asam 3.31% 5.01% 5.19%
Indo Tambangraya Megah 6.68% 10.46% 0.00% Maintain sector Neutral; ADRO and UNTR top picks
We stay sector Neutral as we expect steady earnings amid short-term positive view on
coal price, but think valuation is not compelling given the risks. We expect the stocks’
performances to be driven more by company-specific drivers (i.e. earnings momentum,
upside catalysts, valuations). Hence, we see value in ADRO and expect preference for
defensive earnings to favour UNTR.

Figure 1: Indonesian coal stocks vs. JCI – outperformance continued in 3Q17 but
lagged coal price’s upside

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Analyst(s)
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Erindra KRISNAWAN, CFA 70

T (62) 21 3006 1732 60

E erindra.krisnawan@cimb.com 1/3/2017 2/3/2017 3/3/2017 4/3/2017 5/3/2017 6/3/2017 7/3/2017 8/3/2017 9/3/2017

Felica TRENSENO
PTBA IJ Equity ITMG IJ Equity ADRO IJ Equity UNTR IJ Equity JCI Index
T (62) 21 3006 1722
E felica.trenseno@cimb.com SOURCES: CIMB RESEARCH, COMPANY

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the
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Commodities│Indonesia│Coal Mining│September 16, 2017

Positive price outlook meets

domestic policy risks
COAL PRICE OUTLOOK
YTD price – stable demand, disrupted supply
Against our expectation, the traditionally soft demand period for coal (in 3Q) has
failed to materialise into price corrections this year, as the Newcastle index
rose to an average of US$92.2/t in 3Q17 QTD (Jul–early Sep) and drove the
YTD average price to US$84.1/t (vs. CIMB/Bloomberg median consensus FY17
price forecasts of US$72/t and US$78/t).
We think the strong coal price has been driven by a combination of factors,
namely stable demand, supply disruption and to a lesser extent, weak US dollar.
On the China front, the world’s largest importer continues to focus on supply
reform, namely plans to shut down 400mt of obsolete mine capacity in the next
3-5 years (in tandem with its long-term goal to reduce coal consumption), and
clean up its coal supply due to restrictions on importing low-quality coal.
Outside of China (which still grew imports by 18% in 7M17, albeit Jul’s was
down 8% yoy due to the newly-applied import restrictions at selected ports),
YTD thermal coal import demand in the region was driven by demand from new
markets (e.g. Vietnam, Malaysia, the Philippines) which so far has more than
offset the slower imports from India.
Among these factors, we think the strong prices in 3Q17 were due to supply-
side factors, namely: 1) Persistent tightness in Indonesia’s exports due to
higher-than-average rainfall. While we had projected moderate growth for
Indonesia’s exports this year (5% yoy), the high rainfall in 1H17 led to a decline
in production (by an estimated 8% yoy). 2) Stubborn production response, i.e.
low production volumes in China, despite the government’s efforts to push for
more volume, and implementation of import restrictions. 3) Disruption in
Australia’s production from the industrial strike in Aug.

Figure 2: Newcastle coal price vs. China (QHD) domestic price

(US$/t)
170 29%

24%
150
19%

130 14%

9%
110
4%

90 -1%

-6%
70
-11%

50 -16%

Import premium/discount (RHS) QHD prices (LHS) Adjusted Newcastle price (LHS)

SOURCE: IHS

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Commodities│Indonesia│Coal Mining│September 16, 2017

Figure 3: Coal price forward curve

(US$/t)
110

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90

80

70

60

50

Live 1 year ago 6 months ago 1 month ago 2 months ago 3 months ago

SOURCE: BLOOMBERGS

How long can prices be sustained at a high level?

In terms of Indonesia’s supply, we think the following factors could limit
Indonesia’s ability to grow its supply in the short term (the next 6-9 months).
 Low inventory levels. The disruptions in production due to unfavourable
weather in 2Q17 and 3Q17, combined with steady demand, have driven
inventory down to the lowest levels seen in the past five years. Based on
the numbers of major producers as at Jun 17, we roughly estimate that
inventory is now at 1.5-2.5 weeks of sales (vs.1.5-3.8 weeks in Dec 16).
Figure 4: Indonesian coal producers inventory
Company 2013 2014 2015 2016 1H17
ADRO 1.86 1.85 1.64 1.44 1.53
ITMG 1.62 2.39 2.22 1.04 0.83
PTBA 1.32 1.43 1.37 1.54 1.14
Total (in million tons) 4.81 5.67 5.23 4.02 3.50
SOURCE: CIMB RESEARCH, COMPANY

 Producers/contractors are focusing on overburden removal. Amid the

shortfall in production due to unfavourable weather, producers are focusing
on catching up on the overburden removal instead of coal production. Our
checks with contractors also indicate that FY18 coal production targets are
likely to be more moderate (i.e. flat to 5%).
 No signs yet of small producers re-emerging. Despite the high prices,
we are currently seeing limited signs of Indonesia’s ‘marginal’ producers re-
emerging. We think that this explains the scarcity of available tonnage, in
addition to the logistics issues for large producers.
On the demand front, while China remains the main driver for potential swings,
we think the latest newsflow on China’s domestic policy seems to indicate
continued stable demand in the short-term, namely:
 Indication that the government may require power plants to increase
inventory to better manage the fluctuation in domestic price.
 Possibility of further import restrictions, including major ports (e.g.
Guangzhou), as the government focuses on improving the quality of coal
supply in the domestic market.

Medium-term – what could support prices?

We think the risk in the medium term (i.e. FY18 price) will depend on China
(domestic production policy and hence, import demand) and any supply-side
response (mainly from Indonesia).

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Commodities│Indonesia│Coal Mining│September 16, 2017

On the imports front, we still think that China will implement measures in the
medium term to maintain domestic coal prices within a targeted range of
Rmb500/t to Rmb570/t (equal to US$62-70/t ex-VAT) in 2018, as previously
reiterated by China’s National Development and Reform Commission (NDRC).
On the supply side, our industry channel checks with Indonesian
producers/contractors concluded that:
 Existing large producers continue to implement supply discipline (i.e. flat to
low production growth rate) as most players are managing their reserves,
and some are allocating reserves to its own power plant projects. PTBA
(given its huge reserves base and completion of its logistics chain) and
Berau (given its recently completed takeover by the Sinarmas group) are
the only miners that are increasing production.
 A limited number of new/junior miners emerging, with the exception of a few
that have better reserves and capital (e.g. Geo Energy group and Pada Idi
group which have signed contracts with BUMA as its mining contractors).
 We think the possibility of small producers re-emerging if the price stays at
high levels is still a risk in Indonesia (if the Newcastle price stays above
US$80/t). Nonetheless, even if this happens, we think it will take at least six
months to set up operations and commercial production before any
incremental production is added to the country’s supply.

Adjusting FY17-19 coal price assumptions

Given a more favourable outlook for market balance, we are raising our FY17-
19 and long-term coal price assumptions.
We are marking up our 2017 Newcastle price assumption to US$80/t (from
US$72/t previously) to reflect strong prices YTD. We raise our FY18 and FY19
price assumptions to US$70/t and US$65/t (from US$65/t and US$57/t
previously).

Figure 5: Newcastle coal price assumptions revision

Description 2017 2018 2019 Long Term
Previous (US$/t) 72 65 57 57
Revised (US$/t) 80 70 65 65
SOURCE: CIMB RESEARCH

DOMESTIC POLICY OVERHANG

Market noises on possible change to ‘cost-plus’ basis for
domestic pricing
The cost-plus pricing was actually a part of a proposal by the coal producers’
association in 2015 to the government and state-owned electricity company
PLN. Our industry sources indicate that, despite the muted responses at the
time, PLN is now lobbying in favour of the cost-plus pricing given the current
high price environment.
Against market noise (an article from the local news portal detik.com)
suggesting an immediate implementation of the policy, a press release from the
Minister of Mining and Mineral Resources (MEMR) stating that a review of the
pricing policy will take the economic interests of all parties into consideration is
a relief for the coal miners.
Nonetheless, we think the latest noises have created an overhang for the sector
given: 1) the government’s clear intention to lower electricity and energy prices
(potentially at the expense of suppliers’ margin). 2) Recent evidence of PLN
exerting its bargaining position as the largest buyer of energy.
We continue to think that the highest risk lies in state-owned miner PTBA as its
sales volumes to the domestic market are the highest among peers (at 45-50%
of its sales volume) while ADRO and ITMG (both are Coal Contract of Work
(CCOW) holders), are also exposed to risk given their Domestic Market

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Commodities│Indonesia│Coal Mining│September 16, 2017

Obligation (DMO) volume, albeit to a more limited extent (15-25% of sales

volume).
How likely is a change to the cost-plus system?
In our view, while the aim of cost-plus coal pricing is clearly to lower electricity
prices, the policy will also need to address the following issues:
 Differences in coal mines’ products (calorific value) and cost structure. This
explains the 15-25% margin cited in recent news articles – our checks with
an industry source suggest that margins may be subject to negotiation with
the government.
 Mechanism to impose the pricing system for non-DMO volume.
In addition, a potential downside for the government is also lower royalty
revenues (though this may be partly offset by lower electricity subsidy).

Figure 6: Summary of PLN’s financials – subsidy received from the government has
been declining in recent years, but still a substantial portion of its earnings
Description 2012 2013 2014 2015 2016
Revenue (Rp tn) 129.3 160.6 193.4 217.3 222.8
Operating Profit (Rp tn) (73.8) (60.3) (54.4) (8.2) (31.6)
Depreciation and Amortization (Rp tn) 19.7 22.7 24.3 26.1 28.0
EBITDA (Rp tn) (54.1) (37.6) (30.1) 17.9 (3.6)
Electricity Subsidy (Rp tn) 103.3 101.2 99.3 56.6 60.4
Net Profit After Subsidy (Rp tn) 3.2 (26.2) 11.1 6.0 10.5
SOURCE: PLN'S FINANCIAL REPORT

Figure 7: Government’s electricity subsidy vs. royalty revenue from the mining sector
(Rptn)
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0
2012 2013 2014 2015 2016

Subsidy Royalty

SOURCE: CENTRAL GOVERNMENT FINANCIAL REPORT

EARNINGS OUTLOOK
Estimates revised upwards on stronger coal price outlook
We raise our FY17-19 EPS estimates for the coal producers by 11-36%, mainly
to reflect our higher coal price assumption. We have also taken into
consideration the 1H17 earnings performance from miners which are generally
characterised by higher-than-expected ASPs and margins. However, shortfalls
in coal and overburden volume due to the poor weather in 1H17 may have a
negative impact on 2H17.
We have not included any potential impact from the possible changes in
domestic pricing and instead perform a sensitivity analysis below.
We maintain our FY17-19 EPS estimates for UNTR as we expect stronger
production and margins in 2H17 to compensate for 1H17 performance which
came slightly behind our expectations.

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Commodities│Indonesia│Coal Mining│September 16, 2017

Figure 8: ADRO - estimates revision summary

Previous Revision %change
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales 3,072 3,021 2,749 3,278 3,228 3,015 7% 7% 10%
Operating profit 797 729 485 934 844 652 17% 16% 35%
EBITDA 1,149 1,081 837 1,286 1,196 1,004 12% 11% 20%
Net profit 413 382 259 488 445 351 18% 17% 36%
Core profit 413 382 259 488 445 351 18% 17% 36%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 50.0 60.0 60.0 55.0 55.0 55.0 10% -8% -8%
Stripping ratio 5.0 4.8 4.8 4.7 4.8 4.8 -6% 0% 0%
Coal sales (tons) 53.0 54.0 55.0 52.0 53.0 54.0 -2% -2% -2%
ASP (US$/t) 54.4 52.3 46.3 59.4 57.2 52.1 9% 9% 13%
Cash cost (US$/t) 36.5 36.0 34.8 36.5 38.4 37.3 0% 7% 7%
Cash margin (US$/t) 17.9 16.4 11.6 22.9 18.9 14.9 28% 15% 29%
SOURCES: CIMB, COMPANY REPORTS

Figure 9: ITMG - estimates revision summary

Previous Revision %Changes
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales 1,632 1,568 1,410 1,594 1,523 1,378 -2% -3% -2%
Operating profit 242 202 157 270 236 214 12% 16% 36%
EBITDA 297 259 215 326 292 272 10% 13% 27%
Net profit 184 156 123 205 180 166 11% 16% 35%
Core profit 184 156 123 205 180 166 11% 16% 35%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 45.0 45.0 45.0 55.0 55.0 55.0 22% 22% 22%
Stripping ratio 10.1 9.3 8.2 10.4 10.5 9.5 3% 14% 16%
Coal sales (mt) 26.8 26.2 24.1 23.8 22.9 21.0 -11% -13% -13%
ASP (US$/tonne) 60.8 59.9 58.6 67.0 66.5 65.6 10% 11% 12%
Cash production cost (US$/tonne) 36.4 36.8 36.6 38.8 39.3 38.2 7% 7% 5%
Cash costs (inc royalties, US$/tonne) 49.9 50.2 49.9 53.5 53.9 52.9 7% 8% 6%
Cash margin 10.9 9.7 8.7 13.5 12.6 12.7 24% 29% 46%
SOURCES: CIMB, COMPANY REPORTS

Figure 10: PTBA - Estimates revision

Previous Revision % changes
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales (Rp bn) 20,490 20,841 20,921 19,974 20,451 21,927 -3% -2% 5%
Operating profit (Rp bn) 3,264 3,045 2,696 3,691 3,567 4,184 13% 17% 55%
EBITDA (Rp bn) 3,567 3,373 3,049 3,995 3,896 4,537 12% 15% 49%
Net profit (Rp bn) 2,716 2,730 2,521 3,037 3,143 3,672 12% 15% 46%
Core profit (Rp bn) 2,716 2,730 2,521 3,037 3,143 3,672 12% 15% 46%
EPS (Rp) 1,179 1,185 1,094 1,318 1,364 1,594 12% 15% 46%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 50.0 60.0 60.0 55.0 55.0 55.0 10% -8% -8%
Stripping ratio 5.0 5.0 5.0 5.0 5.0 5.0 0% 0% 0%
Coal sales (m tonne) 26.4 28.4 30.4 24.4 26.4 28.4 -8% -7% -7%
ASP (US$/tonne) 56.4 53.3 50.0 59.4 56.3 56.1 5% 6% 12%
Prod. cash cost (ex. royalty, US$/tonne) 38.1 36.6 35.0 38.6 37.0 35.9 1% 1% 2%
Total cash cost (US$/ tonne) 48.1 46.2 44.1 49.2 47.1 46.0 2% 2% 4%
Cash margin (US$/ tonne) 8.2 7.1 5.9 10.2 9.1 10.2 24% 28% 73%
SOURCES: CIMB, COMPANY REPORTS

Sensitivity analysis on domestic pricing

Absent more details on the regulation, we performed an earnings sensitivity on
coal producers. We base this on 15% margin (worst-case scenario) for
domestic volume, compared with a scenario of US$70/t coal price for FY18.
Based on our analysis, PTBA would see 17% downside on its 2018 EPS, while
downside for ADRO and ITMG is more limited at 11% and 13%, respectively.
Under a 25% margin scenario, we see a neutral earnings impact for the
companies.

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Commodities│Indonesia│Coal Mining│September 16, 2017

Target price revisions

We adjust our target prices to reflect our EPS estimates revision, but also
assign discounts/premium to selected stocks to reflect the domestic regulatory
risk.

Figure 11: Target price revisions

Previous TP New TP
Company
Target price Target PE Basis Target price Target PE Basis
ADRO 1,750 10.8 5-year mean P/E 2,030 10.8 5-year mean P/E
ITMG 17,800 9.6 5-year mean P/E 20,200 9.6 5-year mean P/E
PTBA 14,050 11.7 5-year mean P/E 10,000 7.5 -1.5 s.d. PE
UNTR 29,700 14.2 5-year mean P/E 33,700 15.8 +1 s.d. PE
SOURCE: CIMB RESEARCH

VALUATION AND RATING

Sector performance – positive but lags coal price’s
The Indonesian coal sector has continued to outperform the JCI YTD (+16.2%
vs. JCI’s 11.9%) and in 3Q17 QTD (17% vs. JCI’s 5% ), on the back of the
strong coal price.
The sector’s recent performance, however, appeared to lag the upside in coal
price (24% in 3Q17) and has continued to skew towards UNTR (+43% YTD vs.
coal miners’ 10%), which indicates investors’ preference for contractors due to
their perceived more stable earnings and implying that investors are anticipating
coal’s spot price to correct (from the current high >$95 level).

Figure 12: Indonesian coal stocks vs. JCI – outperformance continued in 3Q17 but
lagged coal price’s upside

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100

90

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1/3/2017 2/3/2017 3/3/2017 4/3/2017 5/3/2017 6/3/2017 7/3/2017 8/3/2017 9/3/2017

PTBA IJ Equity ITMG IJ Equity ADRO IJ Equity UNTR IJ Equity JCI Index

SOURCE: BLOOMBERG

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Figure 13: Indonesian coal stocks vs. coal price

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1/2/2017 2/2/2017 3/2/2017 4/2/2017 5/2/2017 6/2/2017 7/2/2017 8/2/2017 9/2/2017

Coal price (Newcastle) PTBA IJ Equity ITMG IJ Equity

ADRO IJ Equity UNTR IJ Equity

SOURCE: BLOOMBERG

Sector valuation – at discount to historical, but not compelling

The recent share price correction in the sector, triggered by the market’s
concerns over domestic pricing, has lowered P/E valuations below the historical
5-year mean – 12-month forward P/Es for ADRO/ITMG/PTBA are now at 9x/
8.8x/7.4x (a discount of 17%/8%/37% or -0.6/-0.3/-1.3 s.d. to the respective
historical 5-year mean). Given UNTR’s outperformance, its valuation is an
exception to the pure coal names as the stock now trades at 14.7x forward P/E,
on par with its 5-year mean.
Taking into consideration our positive view on coal price in the short-term, but
with risks emanating from domestic policy, we think the mining stocks should
trade range-bound between historical 5-year mean P/E and -1 s.d. below 5-year
mean. Using this valuation framework as a reference, we think the sector
currently does not offer a compelling risk-reward outlook with only ADRO having
higher upside potential than downside.
PTBA is an exception given its steep discount to 5-year mean (59% upside if
P/E is to re-rate to mean), but we think the derating is only warranted given it
has the biggest exposure to domestic policy risk. If we base PTBA’s target
valuation on its -1 s.d. forward P/E (i.e. 8.5x P/E), then the stock would only
have 14% upside from current level.

Figure 14: Sector’s valuation upside/downside (based on prices as of 14/9/2017)

Current share Current Upside to Downside to -
Company Mean P/E -1 s.d. P/E
price forward P/E mean P/E 1 s.d. P/E
ADRO 1,740 9.0 10.8 7.6 20% -16%
ITMG 19,500 8.8 9.6 6.8 9% -23%
PTBA 9,975 7.4 11.7 8.5 59% 14%
UNTR 30,000 14.7 14.2 11.6 -3% -21%
SOURCE: CIMB RESEARCH

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Commodities│Indonesia│Coal Mining│September 16, 2017

Figure 15: ADRO’s forward P/E – attractive discount (17% discount/ -0.6 s.d. to 5-year
mean)
(x)
25

20

15

10

0
1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17

P/E Average 1 s.d. above 5-year mean

2 s.d. above 5-year mean -1 s.d. below 5-year mean -2 s.d. below 5-year mean

SOURCE: CIMB RESEARCH, BLOOMBERG

Figure 16: ITMG’s forward P/E – valuation is on par to historical (-8% discount/ -0.3 s.d.
to 5-year mean); high dividend yield compensates for its short reserve lifespan
(x)
16

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12

10

0
1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17

P/E Average 1 s.d. above 5-year mean

2 s.d. above 5-year mean -1 s.d. below 5-year mean -2 s.d. below 5-year mean

SOURCE: CIMB RESEARCH, BLOOMBERG

Figure 17: PTBA’s forward P/E – a steep discount (37% discount/ -1.3 s.d. to 5-year
mean)
(x)
20

18

16

14

12

10

0
1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17

P/E Average 1 s.d. above 5-year mean

2 s.d. above 5-year mean -1 s.d. below 5-year mean -2 s.d. below 5-year mean

SOURCE: CIMB RESEARCH, BLOOMBERG

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Commodities│Indonesia│Coal Mining│September 16, 2017

Figure 18: UNTR’s 12-month forward P/E

(x)
25

20

15

10

0
1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17

P/E Average 1 s.d. above 5-year mean

2 s.d. above 5-year mean -1 s.d. below 5-year mean -2 s.d. below 5-year mean

SOURCE: CIMB RESEARCH, BLOOMBERG

Stay sector Neutral; ADRO and UNTR are sector top picks
We maintain our Neutral sector rating on the back of our positive outlook for the
coal price (i.e. stable price at a high level of US$75/t) in the next 6-9 months but
with possible risks from domestic policy.
As the sector’s key driver (i.e. positive momentum in the coal price) is largely
behind us, we expect the stocks’ performances to be driven more by company-
specific drivers (i.e. earnings momentum, upside catalysts). While the positive
drivers and valuation discount (on selected stocks) justifies entry, we caution
that these may be offset by risks from commodities price correction and
surprises from domestic policy. We summarise our ratings and expectations for
these drivers in the table below. Our sector picks are ADRO and UNTR.

Figure 19: Coal sector stock selection matrix

Description ADRO ITMG PTBA UNTR
Earnings momentum expectation (=) (-) (-) (+)
(2H17) Stable momentum as shortfall Negative momentum given Less reliable outlook given Positive momentum on lower
in 1H17 SR is small potential margin reversal due to continued track record of rainfall
bigger shortfall in SR achieved production volume miss
in 1H17
Valuation (+) (=) (+) (-)
Attractive discount to 5-year A slight premium to 5-year Largest discount to 5-year Premium to 5-year mean P/E
mean P/E mean P/E, compensated by mean P/E in the sector
high dividend yield
Exposure to domestic policy risk (=) (=) (-) (+)
Moderate exposure Moderate exposure Huge exposure Indirect exposure
Company-specific surprise/ catalyst (+) (=) (=) (+)
Potential earnings contribution Possible announcement of - Potential earnings contribution
from IMC met-coal project latest reserve base from met-coal project
Previous Rating ADD ADD ADD ADD
New Rating ADD ADD HOLD ADD
SOURCE: CIMB RESEARCH

Stock ratings
We maintain our Add ratings on ADRO, ITMG and UNTR, and downgrade
PTBA to Hold (from Add previously).
 We expect stable earnings momentum for ADRO in 2H17 and in 2018. The
company has moderate exposure to domestic market (around 20% of
volume). The stock’s valuation is the most attractive compared to peers
given the largest (20%) upside to 5-year mean and limited downside to the -
1 s.d. P/E.
 We expect UNTR earnings momentum to turn more positive in 2H17 as: 1)
normalising weather conditions should allow the company to ramp up

10
Commodities│Indonesia│Coal Mining│September 16, 2017

production and improve its margin, and 2) it has a strong order book for
heavy equipment to support earnings. The potential contribution from its
metallurgical coal project could also translate into earnings upside in 2018.
Despite its on-par valuation to the 5-year mean, we expect the stock to
rerate as we expect investors’ preference to be skewed towards UNTR as it
is perceived as more defensive
 We expect ITMG’s margin to normalise in 2H17 as we expect the company
to increase its stripping ratio. The stock’s valuation reflects limited (9%)
upside to its 5-year mean P/E, although this is well compensated for by the
high dividend yield. Possible announcement of its latest reserve estimate
could be a surprise catalyst for the stock.
 We downgrade PTBA from Add to Hold as it has the highest exposure to
domestic policy risk. Meanwhile, its earnings outlook remains clouded by its
poor track record of meeting its production targets.

Figure 20: Sector comparison

Target
Price Market 3 Year - Dividend yield
Bloom. Price Core P/E (x) P/BV (x) Recurring ROE (%) EV/EBITDA
Company Recom. (local Cap EPS (%)
Ticker (local
Curr) (US$m) CAGR (%)
curr)
FY17F FY18F FY17F FY18F FY17F FY18F FY19F FY17F FY18F FY17F FY18F
Coal Mining
Adaro Energy ADRO IJ ADD 1,740 2,030 4,200 8.6 9.4 10.6 1.2 1.1 14.8 12.5 9.3 3.7 3.5 2.9 2.6
Bukit Asam PTBA IJ HOLD 9,975 10,000 1,734 7.6 7.3 32.9 1.6 1.4 24.1 19.9 20.3 4.0 3.7 3.3 5.0
Indo Tambangraya Megah ITMG IJ ADD 19,500 20,200 1,663 8.1 9.2 7.4 1.7 1.7 21.4 17.9 16.3 3.9 4.2 6.7 10.5
Sector Average 8.3 8.9 15.0 1.4 1.3 18.4 15.4 13.3 3.8 3.7 3.8 4.9
Mining contractor
United Tractors UNTR IJ ADD 30,000 33,700 8,445 15.7 14.7 33.5 2.6 2.4 17.2 16.7 16.8 7.8 7.1 2.5 3.6
SOURCE: CIMB RESEARCH, COMPANY

11
Coal Mining│Indonesia│September 16, 2017
Shariah Compliant

Company Note
Insert Insert

Indonesia Adaro Energy

ADD (no change) Steady earnings, moderate risk exposure, attractive
Consensus ratings*: Buy 23 Hold 2 Sell 2
valuation
Current price: Rp1,740 ■ We upgrade our FY17/18/19 Newcastle coal price assumptions to US$80/$70/$65
Target price: Rp2,030 and expect prices to be supported by limited supply growth and steady demand.
Previous target: Rp1,750 ■ We raise our FY17-19 EPS estimates by 17-36% to reflect our new coal price
Up/downside: 16.7% assumptions.
CIMB / Consensus: -5.2% ■ Its 1H17 performance was slightly ahead of expectations, with earnings forming 54%
and 53% of our and consensus full-year forecasts, respectively.
Reuters: ADRO.JK
■ We maintain our Add rating and raise our target price to Rp2,030.
Bloomberg: ADRO IJ
Market cap: US$4,200m Coal price assumptions upgrade
Rp55,655,572m On the back of our positive market view, we raise our FY17/18/19 Newcastle coal price
Average daily turnover: US$4.25m assumptions to US$80/$70/$65/t (from US$72/$65/$57/t previously).
Rp56,600m Raise FY17-19F EPS forecasts and target price
Current shares o/s: 31,986m Accordingly, we raise our FY17-19F EPS estimates by 16.6-35.6%. We also raise our
Free float: 40.2% target price to Rp2,030 (from Rp1,750 previously), still based on its 5-year mean P/E of
*Source: Bloomberg 10.8X.

Key changes in this note

1H17 performance slightly ahead of expectations
ADRO’s 1H17 earnings slightly beat our and consensus expectations (at 54%/53% of
FY17F EPS increased by 18.3%.
FY17F respectively) with core net profit of US$299m (+76% yoy). Despite lower coal
FY18F EPS increased by 16.6%.
FY19F EPS increased by 35.6%.
production (-3% yoy) and sales volume (-7% yoy) due to poor weather conditions, 1H17
saw stronger-than-expected margin on higher ASP of US$57.3 (+42% yoy), which was
c.5% above our FY17F, and lower-than-expected cost. We expect its margin to reverse in
Price Close Relative to JCI (RHS)
2H17 as we expect stripping ratio to trend higher, in line with the normalising weather.
2,000 160
Maintain Add
1,500 126 The company sells around 20% of its volume in the domestic market, translating to
moderate risk exposure to the domestic pricing policy. The stock’s valuation is the most
1,000 93
200 attractive compared to peers given the largest (20%) upside to its 5-year mean and
150
100 limited downside to the -1 s.d. P/E. Potential catalysts include steady 2H17F earnings
Vol m

50 and potential contribution from the IMC met coal project. Key risk to our view is weakness
Sep-16 Dec-16 Mar-17 Jun-17 in coal price.
Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -6 4.8 55.4
Relative (%) -6.9 3.8 41.7

Major shareholders % held

Adaro Strategic Investments 43.9
Public 40.2

Insert

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Analyst(s) Revenue (US$m) 2,684 2,524 3,278 3,228 3,015
Net Profit (US$m) 152.4 334.6 488.5 445.0 351.4
Core EPS (US$) 0.009 0.009 0.015 0.014 0.011
Core EPS Growth 109% 3% 62% (9%) (21%)
FD Core P/E (x) 14.33 13.94 8.60 9.44 11.95
DPS (US$) 0.001 0.001 0.004 0.003 0.003
Dividend Yield 1.04% 1.12% 2.88% 2.62% 2.07%
EV/EBITDA (x) 7.11 6.88 3.66 3.51 3.58
EV/Reserve (USD/tonne) 9.43 10.34 10.52 10.62 10.52
Erindra KRISNAWAN, CFA P/FCFE (x) 207.8 15.2 8.0 7.7 7.4
T (62) 21 3006 1732 Net Gearing 25.3% 9.4% (2.1%) (13.6%) (26.3%)
E erindra.krisnawan@cimb.com P/BV (x) 1.47 1.33 1.22 1.14 1.08
Felica TRENSENO ROE 10.4% 10.0% 14.8% 12.5% 9.3%
T (62) 21 3006 1722 % Change In Core EPS Estimates 18.3% 16.6% 35.6%
CIMB/consensus EPS (x) 1.17 0.99 0.78
E felica.trenseno@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Coal Mining│Indonesia│September 16, 2017
Shariah Compliant

Company Note

Figure 1: ADRO - estimates revision summary

Previous Revision %change
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales 3,072 3,021 2,749 3,278 3,228 3,015 7% 7% 10%
Operating profit 797 729 485 934 844 652 17% 16% 35%
EBITDA 1,149 1,081 837 1,286 1,196 1,004 12% 11% 20%
Net profit 413 382 259 488 445 351 18% 17% 36%
Core profit 413 382 259 488 445 351 18% 17% 36%
Core EPS 0.01 0.01 0.01 0.02 0.02 0.02 18% 17% 36%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 50.0 60.0 60.0 55.0 55.0 55.0 10% -8% -8%
Stripping ratio 5.0 4.8 4.8 4.7 4.8 4.8 -6% 0% 0%
Coal sales (tons) 53.0 54.0 55.0 52.0 53.0 54.0 -2% -2% -2%
ASP (US$/t) 54.4 52.3 46.3 59.4 57.2 52.1 9% 9% 13%
Cash cost (US$/t) 36.5 36.0 34.8 36.5 38.4 37.3 0% 7% 7%
Cash margin (US$/t) 17.9 16.4 11.6 22.9 18.9 14.9 28% 15% 29%
SOURCES: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Coal Mining│Indonesia│Adaro Energy│September 16, 2017

BY THE NUMBERS

P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS

2.23 16.0% 26.4 Growth 140%
2.03 14.8%
1.83 13.6% 21.4 100%
1.63 12.4%
1.43 11.2% 16.4 60%
1.23 10.0%
1.03 8.8% 11.4 20%
0.83 7.6%
0.63 6.4% 6.4 -20%
0.43 5.2%
0.23 4.0% 1.4 -60%
Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss

(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Net Revenues 2,684 2,524 3,278 3,228 3,015
Gross Profit 543 685 1,131 1,038 833
Operating EBITDA 730 749 1,286 1,196 1,004
Depreciation And Amortisation (320) (215) (352) (352) (352)
Operating EBIT 410 534 934 844 652
Financial Income/(Expense) (49) (41) (36) (26) (14)
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) (81) 53 0 0 0
Profit Before Tax (pre-EI) 280 547 898 818 639
Exceptional Items
Pre-tax Profit 280 547 898 818 639
Taxation (129) (206) (404) (368) (288)
Exceptional Income - post-tax
Profit After Tax 151 341 494 450 351
Minority Interests 1 (6) (5) (5) 0
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 152 335 488 445 351
Recurring Net Profit 293 301 488 445 351
Fully Diluted Recurring Net Profit 293 301 488 445 351

Cash Flow
(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
EBITDA 730.0 748.6 1,286.5 1,196.1 1,004.5
Cash Flow from Invt. & Assoc.
Change In Working Capital (116.9) 35.1 (89.5) (35.2) 40.5
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow (80.0) 47.3 (5.4) (5.1) 0.0
Net Interest (Paid)/Received (48.9) (40.9) (36.4) (25.7) (13.5)
Tax Paid (129.0) (205.8) (404.1) (368.3) (287.5)
Cashflow From Operations 355.3 584.2 751.0 761.8 743.9
Capex (57.0) (864.8) 0.0 0.0 0.0
Disposals Of FAs/subsidiaries 31.8 0.0 0.0 0.0 0.0
Acq. Of Subsidiaries/investments
Other Investing Cashflow 54.9 669.8 (103.2) (53.0) 12.7
Cash Flow From Investing 29.7 (195.0) (103.2) (53.0) 12.7
Debt Raised/(repaid) (364.8) (113.0) (122.5) (162.0) (191.5)
Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0 0.0
Shares Repurchased
Dividends Paid (80.6) (75.5) (219.8) (200.3) (158.1)
Preferred Dividends
Other Financing Cashflow 17.6 173.7 13.1 (5.1) 0.0
Cash Flow From Financing (427.8) (14.8) (329.2) (367.3) (349.6)
Total Cash Generated (42.8) 374.5 318.6 341.4 407.0
Free Cashflow To Equity 20.2 276.3 525.4 546.8 565.1
Free Cashflow To Firm 445.8 439.3 698.2 752.5 792.6
SOURCE: CIMB RESEARCH, COMPANY DATA

14
Coal Mining│Indonesia│Adaro Energy│September 16, 2017

BY THE NUMBERS… cont’d

Balance Sheet
(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Cash And Equivalents 703 1,077 1,396 1,737 2,144
Total Debtors 198 305 293 289 270
Inventories 73 73 125 124 115
Total Other Current Assets 119 137 203 377 346
Total Current Assets 1,093 1,593 2,018 2,527 2,875
Fixed Assets 3,494 3,981 3,629 3,277 2,925
Total Investments 347 47 47 47 47
Intangible Assets 904 794 794 794 794
Total Other Non-Current Assets 121 109 128 188 178
Total Non-current Assets 4,866 4,930 4,597 4,305 3,943
Short-term Debt 94 123 162 192 413
Current Portion of Long-Term Debt 29 31 31 31 31
Total Creditors 196 208 279 285 284
Other Current Liabilities 135 283 228 355 338
Total Current Liabilities 454 645 700 863 1,066
Total Long-term Debt 1,429 1,280 1,119 927 514
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 140 158 117 124 127
Total Non-current Liabilities 1,569 1,438 1,236 1,052 641
Total Provisions 582 653 611 611 611
Total Liabilities 2,606 2,736 2,547 2,525 2,317
Shareholders' Equity 2,866 3,146 3,434 3,678 3,872
Minority Interests 487 639 634 629 629
Total Equity 3,353 3,786 4,068 4,307 4,501

Key Ratios
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Revenue Growth (19.3%) (6.0%) 29.9% (1.5%) (6.6%)
Operating EBITDA Growth (16.8%) 2.5% 71.8% (7.0%) (16.0%)
Operating EBITDA Margin 27.2% 29.7% 39.2% 37.1% 33.3%
Net Cash Per Share (US$) (0.027) (0.011) 0.003 0.018 0.037
BVPS (US$) 0.09 0.10 0.11 0.12 0.12
Gross Interest Cover 6.75 10.68 18.56 19.28 18.12
Effective Tax Rate 46.1% 37.7% 45.0% 45.0% 45.0%
Net Dividend Payout Ratio 28.5% 14.1% 24.8% 24.8% 24.8%
Accounts Receivables Days 32.72 35.99 33.07 32.92 33.81
Inventory Days 14.45 14.55 16.91 20.76 19.99
Accounts Payables Days 46.67 40.22 41.41 47.03 47.59
ROIC (%) 4.7% 7.3% 10.5% 10.0% 8.1%
ROCE (%) 7.5% 9.6% 16.0% 14.3% 11.1%
Return On Average Assets 2.87% 5.87% 7.82% 6.90% 5.26%

Key Drivers
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
ASP (US$/tonne) 47.0 48.1 59.4 57.2 52.1
Volume Growth (%) -6.5% 0.0% -1.9% 1.9% 1.9%
Mining Cost (US$/tonne) N/A N/A N/A N/A N/A
Fuel Cost (US$/tonne) N/A N/A N/A N/A N/A
Total Cash Cost (US$/tonne) 36.3 34.6 36.1 36.7 36.4

SOURCE: CIMB RESEARCH, COMPANY DATA

15
Coal Mining│Indonesia│September 16, 2017
Shariah Compliant

Company Note
Insert Insert

Indonesia Bukit Asam

HOLD (previously ADD) Heightening risk profile
Consensus ratings*: Buy 22 Hold 3 Sell 1 ■ We upgrade our FY17/18/19 Newcastle coal price assumptions to US$80/$70/$65
Current price: Rp9,975 and expect prices to be supported by limited supply growth and steady demand.
Target price: Rp10,000 ■ Hence, we raise our FY17-19 EPS forecasts, but cut our target price to Rp10,000 in
Previous target: Rp14,050
light of domestic policy risk.
■ In our view, the company’s 1H17 financial performance is on track.
Up/downside: 0.3%
CIMB / Consensus: -35.4% Coal price assumptions upgrade
On the back of our positive market view, we raise our FY17/18/19 Newcastle coal price
Reuters: PTBA.JK
assumptions to US$80/$70/$65/t (from US$72/$65/$57/t previously).
Bloomberg: PTBA IJ
Market cap: US$1,734m Raise FY17-19 EPS forecasts, but cut target price
Rp22,983,716m We subsequently raise our FY17-19 EPS estimates by 12-46%. Despite this, we cut our
Average daily turnover: US$2.31m
target price to Rp10,000 (from Rp14,050 previously), now based on -1.5 s.d. to its 5-year
mean P/E to 7.5x FY18 P/E (11.7x FY18 P/E previously) to reflect the escalating risk
Rp30,774m
exposure to changes in domestic pricing policy given it has the largest sales volume
Current shares o/s: 2,304m
exposure (among coal producers under our coverage) to the domestic market (55% of
Free float: 35.0% PTBA’s sales volume as at 1H17).
*Source: Bloomberg
1H17 performance was on track
Key changes in this note PTBA’s 1H17 bottomline was stronger than expected; core net profit of Rp1,612bn
FY17F EPS increased by 11.8%. (+184.5% yoy) formed 59% of our FY17 forecast and 51% of Bloomberg consensus
FY18F EPS increased by 15.2%. estimate. The 1H17 performance, however, continued to reflect shortfall in production
FY19F EPS increased by 45.7%. volume, though poor weather conditions were partly to blame.
Downgrade from Add to Hold
Price Close Relative to JCI (RHS)
15,000 147.0
We downgrade PTBA from Add to Hold as it has the highest exposure to domestic policy
risk among the coal stocks under our coverage. 55% of its production volume is sold to
13,000 127.0
domestic market, which justifies our valuation de-rating. Meanwhile, its earnings outlook
11,000 107.0 remains clouded by its poor track record of meeting its production targets. Upside risk:
9,000 87.0 favourable domestic policy and better coal price. Downside risk: unfavourable domestic
30
20
policy.
Vol m

10

Sep-16 Dec-16 Mar-17 Jun-17

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -24.6 -13.6 7.8
Relative (%) -25.5 -14.6 -5.9

Major shareholders % held

Indonesian Government 65.0

Insert

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Analyst(s) Revenue (Rpb) 13,845 14,059 19,974 20,451 21,927
Net Profit (Rpb) 2,036 2,006 3,037 3,143 3,672
Core EPS (Rp) 921 903 1,318 1,364 1,594
Core EPS Growth 10.6% (1.9%) 45.9% 3.5% 16.8%
FD Core P/E (x) 10.83 11.04 7.57 7.31 6.26
DPS (Rp) 306.3 265.1 330.2 499.9 517.4
Dividend Yield 3.07% 2.66% 3.31% 5.01% 5.19%
EV/EBITDA (x) 7.54 6.89 3.95 3.69 2.78
EV/Reserve (USD/tonne) 0.96 0.95 0.77 0.71 0.64
Erindra KRISNAWAN, CFA P/FCFE (x) 40.63 16.20 8.83 8.63 7.51
T (62) 21 3006 1732 Net Gearing (9.3%) (16.6%) (40.8%) (44.3%) (47.7%)
E erindra.krisnawan@cimb.com P/BV (x) 2.51 2.21 1.55 1.37 1.19
Felica TRENSENO ROE 24.1% 21.2% 24.1% 19.9% 20.3%
T (62) 21 3006 1722 % Change In Core EPS Estimates 11.8% 15.2% 45.7%
CIMB/consensus EPS (x) 0.91 0.96 1.09
E felica.trenseno@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Coal Mining│Indonesia│September 16, 2017
Shariah Compliant

Company Note

Figure 1: PTBA - Estimates revision

Previous Revision % changes
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales (Rp bn) 20,490 20,841 20,921 19,974 20,451 21,927 -3% -2% 5%
Operating profit (Rp bn) 3,264 3,045 2,696 3,691 3,567 4,184 13% 17% 55%
EBITDA (Rp bn) 3,567 3,373 3,049 3,995 3,896 4,537 12% 15% 49%
Net profit (Rp bn) 2,716 2,730 2,521 3,037 3,143 3,672 12% 15% 46%
Core profit (Rp bn) 2,716 2,730 2,521 3,037 3,143 3,672 12% 15% 46%
EPS (Rp) 1,179 1,185 1,094 1,318 1,364 1,594 12% 15% 46%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 50.0 60.0 60.0 55.0 55.0 55.0 10% -8% -8%
Stripping ratio 5.0 5.0 5.0 5.0 5.0 5.0 0% 0% 0%
Coal sales (m tonne) 26.4 28.4 30.4 24.4 26.4 28.4 -8% -7% -7%
ASP (US$/tonne) 56.4 53.3 50.0 59.4 56.3 56.1 5% 6% 12%
Prod. cash cost (ex. royalty, US$/tonne) 38.1 36.6 35.0 38.6 37.0 35.9 1% 1% 2%
Total cash cost (US$/ tonne) 48.1 46.2 44.1 49.2 47.1 46.0 2% 2% 4%
Cash margin (US$/ tonne) 8.2 7.1 5.9 10.2 9.1 10.2 24% 28% 73%
SOURCES: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
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Coal Mining│Indonesia│Bukit Asam│September 16, 2017

BY THE NUMBERS

P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS

4.70 34.0% 23.0 Growth 60%
4.20 32.0% 21.0 48%
19.0 36%
3.70 30.0%
17.0 24%
3.20 28.0% 15.0 12%
2.70 26.0% 13.0 0%
2.20 24.0% 11.0 -12%
9.0 -24%
1.70 22.0%
7.0 -36%
1.20 20.0% 5.0 -48%
0.70 18.0% 3.0 -60%
Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss

(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Net Revenues 13,845 14,059 19,974 20,451 21,927
Gross Profit 4,251 4,401 6,208 6,176 6,968
Operating EBITDA 2,807 2,921 3,995 3,896 4,537
Depreciation And Amortisation (279) (326) (304) (328) (353)
Operating EBIT 2,528 2,595 3,691 3,567 4,184
Financial Income/(Expense) 115 53 122 388 476
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) 20 49 236 236 236
Profit Before Tax (pre-EI) 2,664 2,697 4,049 4,191 4,896
Exceptional Items 0 0 0 0 0
Pre-tax Profit 2,664 2,697 4,049 4,191 4,896
Taxation (627) (673) (1,012) (1,048) (1,224)
Exceptional Income - post-tax
Profit After Tax 2,037 2,024 3,037 3,143 3,672
Minority Interests (1) (18) 0 0 0
Preferred Dividends 0 0 0 0 0
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 2,036 2,006 3,037 3,143 3,672
Recurring Net Profit 2,123 2,082 3,037 3,143 3,672
Fully Diluted Recurring Net Profit 2,123 2,082 3,037 3,143 3,672

Cash Flow
(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
EBITDA 2,807 2,921 3,995 3,896 4,537
Cash Flow from Invt. & Assoc.
Change In Working Capital 103 (198) 458 (100) (248)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow 350 387 387 387 387
Net Interest (Paid)/Received 115 53 122 388 476
Tax Paid (627) (673) (1,012) (1,048) (1,224)
Cashflow From Operations 2,748 2,490 3,950 3,522 3,927
Capex (1,886) (719) (814) (814) (814)
Disposals Of FAs/subsidiaries (0) 0 (4) (4) (13)
Acq. Of Subsidiaries/investments 0 0 0 0 0
Other Investing Cashflow 0 0 0 0 0
Cash Flow From Investing (1,886) (719) (817) (818) (826)
Debt Raised/(repaid) (296) (353) (531) (42) (42)
Proceeds From Issue Of Shares 0 0 0 0 0
Shares Repurchased 0 0 0 0 0
Dividends Paid (706) (611) (761) (1,152) (1,192)
Preferred Dividends
Other Financing Cashflow 312 240 0 0 0
Cash Flow From Financing (690) (724) (1,292) (1,194) (1,234)
Total Cash Generated 172 1,048 1,841 1,510 1,867
Free Cashflow To Equity 566 1,418 2,602 2,662 3,059
Free Cashflow To Firm 1,019 1,921 3,249 2,802 3,198

SOURCE: CIMB RESEARCH, COMPANY DATA

18
Coal Mining│Indonesia│Bukit Asam│September 16, 2017

BY THE NUMBERS… cont’d

Balance Sheet
(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Cash And Equivalents 3,115 3,675 7,492 8,851 10,567
Total Debtors 1,596 2,285 2,715 2,780 2,980
Inventories 1,233 1,102 1,509 1,564 1,639
Total Other Current Assets 1,654 1,288 0 0 0
Total Current Assets 7,598 8,350 11,715 13,195 15,186
Fixed Assets 5,579 6,088 6,601 7,091 7,564
Total Investments 1,070 1,226 1,226 1,226 1,226
Intangible Assets 1,443 1,401 1,401 1,401 1,401
Total Other Non-Current Assets 1,204 1,512 1,512 1,512 1,512
Total Non-current Assets 9,296 10,227 10,740 11,230 11,703
Short-term Debt 1,628 1,754 315 315 315
Current Portion of Long-Term Debt
Total Creditors 1,146 539 546 566 593
Other Current Liabilities 2,148 2,749 2,749 2,749 2,749
Total Current Liabilities 4,923 5,043 3,610 3,631 3,658
Total Long-term Debt 623 167 1,075 1,033 990
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 2,061 2,814 2,814 2,814 2,814
Total Non-current Liabilities 2,684 2,982 3,889 3,847 3,805
Total Provisions 0 0 0 0 0
Total Liabilities 7,606 8,024 7,500 7,477 7,462
Shareholders' Equity 9,175 10,421 14,825 16,816 19,296
Minority Interests 113 131 131 131 131
Total Equity 9,288 10,552 14,956 16,947 19,427

Key Ratios
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Revenue Growth 5.9% 1.5% 42.1% 2.4% 7.2%
Operating EBITDA Growth 19.5% 4.1% 36.8% (2.5%) 16.5%
Operating EBITDA Margin 20.3% 20.8% 20.0% 19.0% 20.7%
Net Cash Per Share (Rp) 375 761 2,648 3,256 4,019
BVPS (Rp) 3,982 4,523 6,434 7,298 8,374
Gross Interest Cover 16.07 17.43 31.83 36.63 42.97
Effective Tax Rate 23.5% 24.9% 25.0% 25.0% 25.0%
Net Dividend Payout Ratio 34.7% 30.4% 25.1% 36.6% 32.5%
Accounts Receivables Days 40.01 50.51 45.68 49.03 47.94
Inventory Days 43.12 44.26 34.61 39.29 39.09
Accounts Payables Days 32.18 31.94 14.39 14.21 14.14
ROIC (%) 32.4% 27.6% 35.5% 34.2% 37.9%
ROCE (%) 24.9% 23.3% 27.3% 23.4% 24.4%
Return On Average Assets 12.1% 11.1% 14.2% 11.8% 12.5%

Key Drivers
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
ASP (US$/tonne) 54.0 48.0 59.4 56.3 56.1
Volume Growth (%) 14.1% 0.8% 16.7% 8.2% 7.6%
Mining Cost (US$/tonne) N/A N/A N/A N/A N/A
Fuel Cost (US$/tonne) N/A N/A N/A N/A N/A
Total Cash Cost (US$/tonne) 44.8 38.4 49.2 47.1 46.0
SOURCE: CIMB RESEARCH, COMPANY DATA

19
Coal Mining│Indonesia│September 16, 2017

Company Note
Insert Insert

Indonesia Indo Tambangraya Megah

ADD (no change) Stable coal price = sustainable yield
Consensus ratings*: Buy 18 Hold 6 Sell 1 ■ We upgrade our FY17/18/19 Newcastle coal price assumptions to US$80/$70/$65
Current price: Rp19,500 and expect prices to be supported by limited supply growth and steady demand.
Target price: Rp20,200 ■ We raise our FY17-19F EPS estimates by 11-35% to account for our new coal price
Previous target: Rp17,800
assumptions.
■ ITMG delivered an on-track 1H17 performance, but we believe margin trend could
Up/downside: 3.6%
reverse in 2H17F.
CIMB / Consensus: -11.8% ■ Maintain Add. We upgrade our target price to Rp20,200.
Reuters: ITMG.JK
Coal price assumptions upgrade
Bloomberg: ITMG IJ On the back of our positive market view, we raise our FY17/18/19 Newcastle coal price
Market cap: US$1,663m assumption to US$80/$70/$65/t (from US$72/$65/$57/t previously).
Rp22,033,538m
Average daily turnover: US$1.88m
Raise FY17-19F EPS forecasts and TP
Accordingly, we raise our FY17-19F EPS estimates by 11-35%. We also raise our target
Rp25,068m
price to Rp20,200 (from Rp17,800 previously), still based on its 5-year mean P/E of 9.6x.
Current shares o/s: 1,130m
Free float: 22.4% On track 1H17 performance; margin trend could reverse in 2H17
*Source: Bloomberg 1H17 earnings came in above our and consensus expectations, forming 58% and 50% of
full-year forecasts respectively. 1H17 core net profit rose 189% yoy to US$105m; 2Q17
Key changes in this note core net profit rose 258% yoy but decreased 16% qoq. 1H17 performance was mainly
FY17F EPS increased by 11.3%. driven by higher-than-expected margin on lower-than-expected costs, which more than
FY18F EPS increased by 16.0%. offset the shortfall in sales volume. We expect margin trend to reverse in 2H17 as the
FY19F EPS increased by 34.7%. company aims to raise its stripping ratio to aid its reserve preservation goal.
Maintain Add
Price Close Relative to JCI (RHS)
The stock’s valuation reflects limited (9%) upside to its 5-year mean P/E, but this is well
23,800 219
compensated by the high dividend yield. Potential catalyst is steady 2H17 earnings.
18,800 176 Possible announcement of its latest reserve estimate could also provide an upside
13,800 132 surprise for the stock. Key risk to our view is weakness in coal price.
8,800 88
10

5
Vol m

Sep-16 Dec-16 Mar-17 Jun-17

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -2.3 7.9 94.5
Relative (%) -3.2 6.9 80.8

Major shareholders % held

Centralink Wisesa International
(Banpu) 65.0

Insert

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Analyst(s) Revenue (US$m) 1,589 1,367 1,594 1,523 1,378
Net Profit (US$m) 63.1 130.7 204.6 180.3 165.6
Core EPS (US$) 0.08 0.13 0.18 0.16 0.15
Core EPS Growth (51.7%) 60.5% 43.1% (11.9%) (8.2%)
FD Core P/E (x) 18.66 11.63 8.13 9.22 10.04
DPS (US$) 0.10 0.05 0.10 0.15 0.00
Dividend Yield 6.9% 3.2% 6.7% 10.5% 0.0%
EV/EBITDA (x) 5.66 5.11 3.88 4.17 4.28
EV/Reserve (USD/tonne) 5.13 5.45 5.71 6.15 6.57
Erindra KRISNAWAN, CFA P/FCFE (x) 10.42 12.44 9.13 7.64 8.02
T (62) 21 3006 1732 Net Gearing (32.1%) (36.2%) (40.0%) (44.1%) (48.9%)
E erindra.krisnawan@cimb.com P/BV (x) 1.99 1.83 1.66 1.65 1.63
Felica TRENSENO ROE 10.3% 16.4% 21.4% 17.9% 16.3%
T (62) 21 3006 1722 % Change In Core EPS Estimates 11.3% 16.0% 34.7%
CIMB/consensus EPS (x) 0.93 0.88 0.78
E felica.trenseno@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Coal Mining│Indonesia│September 16, 2017

Company Note

Figure 1: ITMG - estimates revision summary

Previous Revision %Changes
Description
2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F
Sales 1,632 1,568 1,410 1,594 1,523 1,378 -2% -3% -2%
Operating profit 242 202 157 270 236 214 12% 16% 36%
EBITDA 297 259 215 326 292 272 10% 13% 27%
Net profit 184 156 123 205 180 166 11% 16% 35%
Core profit 184 156 123 205 180 166 11% 16% 35%
Core EPS 0.16 0.14 0.11 0.18 0.16 0.15 11% 16% 35%

Operating assumptions:
Newcastle benchmark (US$/t) 72.0 65.0 57.0 80.0 70.0 65.0 11% 8% 14%
Crude oil (US$/ bbl) 45.0 45.0 45.0 55.0 55.0 55.0 22% 22% 22%
Stripping ratio 10.1 9.3 8.2 10.4 10.5 9.5 3% 14% 16%
Coal sales (mt) 26.8 26.2 24.1 23.8 22.9 21.0 -11% -13% -13%
ASP (US$/tonne) 60.8 59.9 58.6 67.0 66.5 65.6 10% 11% 12%
Cash production cost (US$/tonne) 36.4 36.8 36.6 38.8 39.3 38.2 7% 7% 5%
Cash costs (inc royalties, US$/tonne) 49.9 50.2 49.9 53.5 53.9 52.9 7% 8% 6%
Cash margin 10.9 9.7 8.7 13.5 12.6 12.7 24% 29% 46%
SOURCES: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Coal Mining│Indonesia│Indo Tambangraya Megah│September 16, 2017

BY THE NUMBERS

P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS

6.01 42.0% 30.4 Growth 160%
5.01 36.2% 25.4 118%
4.01 30.3% 20.4 77%
3.01 24.5% 15.4 35%
2.01 18.7% 10.4 -7%
1.01 12.8% 5.4 -48%
0.01 7.0% 0.4 -90%
Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss

(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Net Revenues 1,589 1,367 1,594 1,523 1,378
Gross Profit 350 331 417 376 346
Operating EBITDA 246 261 326 292 272
Depreciation And Amortisation (53) (53) (55) (56) (58)
Operating EBIT 194 209 270 236 214
Financial Income/(Expense) 3 1 8 10 11
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) (57) (18) 0 0 0
Profit Before Tax (pre-EI) 139 192 278 245 225
Exceptional Items 0 0 0 0 0
Pre-tax Profit 139 192 278 245 225
Taxation (76) (61) (74) (65) (60)
Exceptional Income - post-tax
Profit After Tax 63 131 205 180 166
Minority Interests 0 0 0 0 0
Preferred Dividends 0 0 0 0 0
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 63 131 205 180 166
Recurring Net Profit 89 143 205 180 166
Fully Diluted Recurring Net Profit 89 143 205 180 166

Cash Flow
(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
EBITDA 246.3 261.1 325.6 292.0 272.1
Cash Flow from Invt. & Assoc.
Change In Working Capital 37.4 (11.4) (17.8) 5.1 9.0
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow 0.0 0.0 0.0 0.0 0.0
Net Interest (Paid)/Received 3.3 1.5 8.0 9.7 10.8
Tax Paid (76.3) (61.3) (73.7) (65.0) (59.7)
Cashflow From Operations 210.6 189.9 242.1 241.9 232.2
Capex (47.6) (24.2) (25.0) (25.0) (25.0)
Disposals Of FAs/subsidiaries 0.0 0.0 0.0 0.0 0.0
Acq. Of Subsidiaries/investments 0.0 0.0 0.0 0.0 0.0
Other Investing Cashflow (3.3) (32.0) (34.9) 0.7 0.0
Cash Flow From Investing (51.0) (56.2) (59.9) (24.3) (25.0)
Debt Raised/(repaid) 0.0 0.0 0.0 0.0 0.0
Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0 0.0
Shares Repurchased
Dividends Paid (114.5) (53.6) (111.1) (173.9) 0.0
Preferred Dividends
Other Financing Cashflow 0.0 0.0 0.0 0.0 0.0
Cash Flow From Financing (114.5) (53.6) (111.1) (173.9) 0.0
Total Cash Generated 45.1 80.1 71.1 43.7 207.2
Free Cashflow To Equity 159.6 133.7 182.2 217.6 207.2
Free Cashflow To Firm 160.7 134.6 182.2 217.6 207.2
SOURCE: CIMB RESEARCH, COMPANY DATA

22
Coal Mining│Indonesia│Indo Tambangraya Megah│September 16, 2017

BY THE NUMBERS… cont’d

Balance Sheet
(US$m) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Cash And Equivalents 267.8 328.1 400.9 444.6 499.3
Total Debtors 118.8 131.6 148.7 142.8 130.8
Inventories 117.4 62.0 63.4 61.8 55.6
Total Other Current Assets 8.4 17.3 17.3 17.3 17.3
Total Current Assets 512.3 539.0 630.3 666.5 702.9
Fixed Assets 254.6 223.8 193.6 162.1 129.4
Total Investments 0.0 0.0 0.0 0.0 0.0
Intangible Assets 0.0 0.0 0.0 0.0 0.0
Total Other Non-Current Assets 411.5 447.0 481.9 481.1 480.4
Total Non-current Assets 666.0 670.8 675.5 643.3 609.9
Short-term Debt 0.0 0.0 0.0 0.0 0.0
Current Portion of Long-Term Debt
Total Creditors 120.6 94.0 94.7 92.2 83.0
Other Current Liabilities 163.7 144.9 144.9 144.9 144.9
Total Current Liabilities 284.3 238.8 239.5 237.1 227.9
Total Long-term Debt 0.0 0.0 0.0 0.0 0.0
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 53.8 58.8 58.8 58.8 58.8
Total Non-current Liabilities 53.8 58.8 58.8 58.8 58.8
Total Provisions 5.7 4.7 4.7 4.7 4.7
Total Liabilities 343.8 302.4 303.1 300.6 291.4
Shareholders' Equity 834.6 907.4 1,002.7 1,009.1 1,021.4
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Equity 834.6 907.4 1,002.7 1,009.1 1,021.4

Key Ratios
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Revenue Growth (18.2%) (14.0%) 16.5% (4.4%) (9.5%)
Operating EBITDA Growth (27.5%) 6.0% 24.7% (10.3%) (6.8%)
Operating EBITDA Margin 15.5% 19.1% 20.4% 19.2% 19.7%
Net Cash Per Share (US$) 0.24 0.29 0.35 0.39 0.44
BVPS (US$) 0.74 0.80 0.89 0.89 0.90
Gross Interest Cover 177.8 228.7 N/A N/A N/A
Effective Tax Rate 54.7% 31.9% 26.5% 26.5% 26.5%
Net Dividend Payout Ratio 181% 41% 54% 96% NA
Accounts Receivables Days 32.41 31.73 30.64 33.40 34.54
Inventory Days 39.36 31.66 19.44 19.91 20.75
Accounts Payables Days 42.03 37.87 29.25 29.74 30.99
ROIC (%) 27.0% 33.3% 42.1% 35.4% 34.1%
ROCE (%) 22.7% 24.1% 29.0% 24.3% 22.1%
Return On Average Assets 4.8% 10.8% 15.6% 13.0% 11.8%

Key Drivers
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
ASP (US$/tonne) 55.8 53.0 67.0 66.5 65.6
Volume Growth (%) -1.7% -5.8% -11.3% -3.8% -8.3%
Mining Cost (US$/tonne) N/A N/A N/A N/A N/A
Fuel Cost (US$/tonne) 1 1 1 1 1
Total Cash Cost (US$/tonne) 41.6 39.4 45.0 45.6 44.6

SOURCE: CIMB RESEARCH, COMPANY DATA

23
Industrial Machinery│Indonesia│September 16, 2017
Shariah Compliant

Company Note
Insert Insert

Indonesia United Tractors

ADD (no change) Still a safer coal play
Consensus ratings*: Buy 27 Hold 2 Sell 1 ■ We upgrade our FY17/18/19 Newcastle coal price assumptions to US$80/$70/$65
Current price: Rp30,000 and expect prices to be supported by limited supply growth and steady demand.
Target price: Rp33,700 ■ Our 2017-19 EPS forecasts are intact but we raise our target price to Rp33,700.
Previous target: Rp29,700
■ We expect stronger earnings momentum in 2H17.
Up/downside: 12.3% Coal price assumptions upgrade
CIMB / Consensus: 1.9% On the back of our positive market view, we raise our FY17/18/19 Newcastle coal price
assumptions to US$80/$70/$65/t (from US$72/$65/$57/t previously).
Reuters: UNTR.JK
Bloomberg: UNTR IJ Maintain FY17-19 EPS forecasts but raise target price
Market cap: US$8,445m We maintain our FY17-19 EPS estimates for UNTR as we have imputed optimistic
Rp111,904,064m expectations for coal production and equipment demand. However, we raise our target
Average daily turnover: US$5.65m
prices to Rp33,700 (from Rp29,700 previously) due to our expectation for defensive
earnings to favour UNTR, now based on 15.8x FY18 P/E, an 11% premium to its 5-year
Rp75,310m
mean.
Current shares o/s: 3,863m
Free float: 40.0% Expect stronger earnings momentum in 2H17
*Source: Bloomberg UNTR posted strong 1H17 core net profit (+66% yoy) of Rp3.6tr. But this still fell short of
our estimate (46% of CIMB full-year forecast – though above consensus expectations at
Key changes in this note 54% of forecast) due to higher-than-normal rainfall, which dampened production and
No change. margins. We expect UNTR’s earnings momentum to turn more positive in 2H17 as: 1)
normalising weather conditions should allow UNTR to ramp up production and improve
Price Close Relative to JCI (RHS) its margin, and 2) its strong order book in heavy equipment should support earnings.
30,000 164 Maintain Add
25,000 139 Despite valuations on par with its 5-year mean, we expect the stock to rerate as we
20,000 114 expect investors to prefer the stock as its earnings are perceived as more defensive. A
15,000 89
potential catalyst is improving 2H17 earnings. The potential contribution from its
15
10
metallurgical coal project could also translate into earnings upside in FY18. Downside
risks: weakness in coal price.
Vol m

Sep-16 Dec-16 Mar-17 Jun-17

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) 0.3 8.3 78.3
Relative (%) -0.6 7.3 64.6

Major shareholders % held

Astra International 60.0

Insert

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Analyst(s) Revenue (Rpb) 49,347 45,539 54,741 58,443 62,464
Operating EBITDA (Rpb) 12,585 9,995 12,957 14,133 15,345
Net Profit (Rpb) 3,853 5,002 7,402 7,874 8,599
Core EPS (Rp) 1,666 1,295 1,916 2,038 2,226
Core EPS Growth (10.1%) (22.3%) 48.0% 6.4% 9.2%
FD Core P/E (x) 18.01 23.17 15.66 14.72 13.48
DPS (Rp) 556 569 738 1,092 1,162
Dividend Yield 1.85% 1.90% 2.46% 3.64% 3.87%
EV/EBITDA (x) 8.18 9.86 7.77 7.11 6.37
Erindra KRISNAWAN, CFA P/FCFE (x) 14.13 17.44 NA 26.66 15.88
T (62) 21 3006 1732 Net Gearing (36.4%) (44.8%) (33.7%) (31.5%) (34.3%)
E erindra.krisnawan@cimb.com P/BV (x) 3.06 2.84 2.55 2.36 2.18
Felica TRENSENO ROE 17.3% 12.7% 17.2% 16.7% 16.8%
T (62) 21 3006 1722 % Change In Core EPS Estimates 0% 0% 0%
CIMB/consensus EPS (x) 1.02 0.95 0.96
E felica.trenseno@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE Powered by the
UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Industrial Machinery│Indonesia│United Tractors│September 16, 2017

BY THE NUMBERS

P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS

2.80 21.0% 22.0 Growth 60%
2.60 19.8% 20.0 46%
2.40 18.5% 18.0 31%
2.20 17.3%
16.0 17%
2.00 16.0%
14.0 3%
1.80 14.8%
1.60 13.5% 12.0 -11%
1.40 12.3% 10.0 -26%
1.20 11.0% 8.0 -40%
Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss

(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Net Revenues 49,347 45,539 54,741 58,443 62,464
Gross Profit 11,702 9,661 12,709 13,760 14,988
Operating EBITDA 12,585 9,995 12,957 14,133 15,345
Depreciation And Amortisation (3,999) (3,289) (3,705) (4,063) (4,301)
Operating EBIT 8,586 6,706 9,252 10,070 11,044
Financial Income/(Expense) 72 191 750 570 576
Pretax Income/(Loss) from Assoc. 87 66 0 0 0
Non-Operating Income/(Expense) (4,553) (234) 0 0 0
Profit Before Tax (pre-EI) 4,193 6,730 10,002 10,640 11,620
Exceptional Items 0 0 0 0 0
Pre-tax Profit 4,193 6,730 10,002 10,640 11,620
Taxation (1,400) (1,626) (2,501) (2,660) (2,905)
Exceptional Income - post-tax 0 0 0 0 0
Profit After Tax 2,792 5,104 7,502 7,980 8,715
Minority Interests 1,061 (102) (100) (106) (116)
Preferred Dividends 0 0 0 0 0
FX Gain/(Loss) - post tax 0 0 0 0 0
Other Adjustments - post-tax 0 0 0 0 0
Net Profit 3,853 5,002 7,402 7,874 8,599
Recurring Net Profit 6,436 5,002 7,402 7,874 8,599
Fully Diluted Recurring Net Profit 6,436 5,002 7,402 7,874 8,599

Cash Flow
(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
EBITDA 12,585 9,995 12,957 14,133 15,345
Cash Flow from Invt. & Assoc. 0 0 0 0 0
Change In Working Capital 2,294 2,140 (2,924) (491) (599)
(Incr)/Decr in Total Provisions 0 0 0 0 0
Other Non-Cash (Income)/Expense 0 0 0 0 0
Other Operating Cashflow (5,676) (594) (64) (1,216) (568)
Net Interest (Paid)/Received (324) (491) (111) (111) (111)
Tax Paid (1,400) (1,626) (2,501) (2,660) (2,905)
Cashflow From Operations 7,479 9,425 7,357 9,655 11,162
Capex 0 (2,703) (6,075) (5,400) (4,050)
Disposals Of FAs/subsidiaries 5,303 140 157 0 0
Acq. Of Subsidiaries/investments (382) 632 (2,430) (945) (945)
Other Investing Cashflow (3,849) 350 88 1,038 1,133
Cash Flow From Investing 1,072 (1,580) (8,260) (5,307) (3,862)
Debt Raised/(repaid) (350) (1,199) (304) 0 0
Proceeds From Issue Of Shares 0 0 0 0 0
Shares Repurchased 0 0 0 0 0
Dividends Paid (2,148) (2,196) (2,851) (4,219) (4,488)
Preferred Dividends 0 0 0 0 0
Other Financing Cashflow (550) 38 0 0 0
Cash Flow From Financing (3,047) (3,358) (3,156) (4,219) (4,488)
Total Cash Generated 5,503 4,487 (4,058) 129 2,811
Free Cashflow To Equity 8,201 6,645 (1,207) 4,348 7,299
Free Cashflow To Firm 8,874 8,335 (791) 4,459 7,411

SOURCE: CIMB RESEARCH, COMPANY DATA

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Industrial Machinery│Indonesia│United Tractors│September 16, 2017

BY THE NUMBERS… cont’d

Balance Sheet
(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Total Cash And Equivalents 15,413 19,461 15,403 15,531 18,342
Total Debtors 12,170 12,115 13,964 14,836 15,783
Inventories 8,328 7,108 8,220 8,738 9,285
Total Other Current Assets 3,349 3,514 3,593 4,503 4,717
Total Current Assets 39,260 42,197 41,180 43,609 48,128
Fixed Assets 17,519 16,685 18,900 20,078 19,666
Total Investments 1,937 1,305 3,735 4,680 5,625
Intangible Assets 1,297 1,114 114 114 114
Total Other Non-Current Assets 1,703 2,690 2,690 2,690 2,690
Total Non-current Assets 22,456 21,794 25,438 27,561 28,094
Short-term Debt 24 304 0 0 0
Current Portion of Long-Term Debt 0 0 0 0 0
Total Creditors 13,887 14,605 14,650 15,543 16,484
Other Current Liabilities 4,370 3,447 3,447 3,447 3,447
Total Current Liabilities 18,280 18,356 18,097 18,990 19,931
Total Long-term Debt 1,091 65 65 65 65
Hybrid Debt - Debt Component 0 0 0 0 0
Total Other Non-Current Liabilities 2,065 1,968 1,968 1,968 1,968
Total Non-current Liabilities 3,156 2,033 2,033 2,033 2,033
Total Provisions 1,029 980 980 980 980
Total Liabilities 22,465 21,369 21,110 22,003 22,945
Shareholders' Equity 37,920 40,860 45,411 49,065 53,176
Minority Interests 1,331 1,762 97 101 101
Total Equity 39,250 42,622 45,507 49,167 53,277

Key Ratios
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
Revenue Growth (7.1%) (7.7%) 20.2% 6.8% 6.9%
Operating EBITDA Growth (3.4%) (20.6%) 29.6% 9.1% 8.6%
Operating EBITDA Margin 25.5% 21.9% 23.7% 24.2% 24.6%
Net Cash Per Share (Rp) 3,701 4,942 3,970 4,004 4,731
BVPS (Rp) 9,815 10,577 11,754 12,701 13,765
Gross Interest Cover 26.53 13.67 83.10 90.44 99.19
Effective Tax Rate 33.4% 24.2% 25.0% 25.0% 25.0%
Net Dividend Payout Ratio 55.7% 43.9% 38.5% 53.6% 52.2%
Accounts Receivables Days 90.95 90.50 79.79 83.23 83.19
Inventory Days 78.04 78.73 66.55 69.26 69.28
Accounts Payables Days 123.0 140.4 122.8 119.4 119.4
ROIC (%) 26.5% 25.7% 36.8% 34.3% 34.5%
ROCE (%) 21.6% 17.3% 22.3% 22.2% 22.4%
Return On Average Assets 4.5% 7.8% 10.3% 10.8% 11.0%

Key Drivers
Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F
ASP (% chg, main prod./serv.) N/A N/A N/A N/A N/A
Unit sales grth (%, main prod./serv.) -39.5% 2.7% 25.0% 10.4% 9.0%
Util. rate (%, main prod./serv.) N/A N/A N/A N/A N/A
ASP (% chg, 2ndary prod./serv.) -19.8% 8.4% 7.3% -6.8% 0.0%
Unit sales grth (%,2ndary prod/serv) -22.5% 47.7% 7.4% 13.7% 6.0%
Util. rate (%, 2ndary prod/serv) N/A N/A N/A N/A N/A
Unit raw mat ASP (%chg,main) N/A N/A N/A N/A N/A
Unit raw mat ASP (%chg,2ndary) N/A N/A N/A N/A N/A

SOURCE: CIMB RESEARCH, COMPANY DATA

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Commodities│Indonesia│Coal Mining│September 16, 2017

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relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning
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defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business
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Commodities│Indonesia│Coal Mining│September 16, 2017

activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such
investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of
this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed
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CIMB Securities (USA) Inc does not make a market on other securities mentioned in the report.
Neither CIMB Securities (USA) Inc., nor its affiliates have managed or co-managed a public offering of any of the securities mentioned in the past 12
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mentioned in the past 12 months.
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the company mentioned within the next 3 months.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional,
institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Distribution of stock ratings and inv estment banking clients for quarter ended on 30 June 2017
1288 companies under cov erage for quarter ended on 30 June 2017
Rating Distribution (%) Inv estment Banking clients (%)
Add 51.2% 5.5%
Hold 35.7% 3.1%
Reduce 11.9% 0.1%

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in
2016, Anti-Corruption 2016
AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared,
AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good,
Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good,
n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good,
n/a, BJCHI – Good, Declared, BLA – Very Good, Certified, BPP – not available, n/a, BR - Good, n/a, BTS - Excellent, Certified, CBG – Good,
n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared,
CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent,
Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified,
EPG – Good, n/a, GFPT - Excellent, Declared, GGC – not available, n/a, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified,
GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent,
Declared, ICHI – Very Good, Declared, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Good, n/a, IVL -
Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK
- Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent,
Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MACO – Very Good, n/a,
MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared,
MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a,
OISHI – Very Good, n/a, PLANB – Very Good, Declared, PLAT – Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT -
Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified,
ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD –
Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared,
SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPA - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared,
STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified,
THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good,
Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a,
TMB - Excellent, Certified, TNR – not available, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very
Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, TVO – Very Good, Declared UNIQ – not available, Declared, VGI –
Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.
Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai
Institute of Directors (as of October 28, 2016) are categorized into:
- Companies that have declared their intention to join CAC, and
- Companies certified by CAC

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CIMB Recommendation Framework

Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward
net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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