Adaro’s Earnings Fall in H1 as Profit At Harum Climbs
With coal miners under pressure from shrinking profit margins, Adaro Energy, the second-largest coal producer in Indonesia, posted lower first-half net income as expenses climbed faster than sales. Meanwhile, profit at Harum Energy rose.
Adaro said in a statement to the Indonesia Stock Exchange (IDX) on Friday that its net income in the January-June period fell 3 percent to $260 million from a year earlier. Revenue rose 9.1 percent to $1.93 billion.
The average selling price rose 10.2 percent from last year, benefiting from strong coal prices at the beginning of this year. However, operating expenses climbed 25 percent. Labor costs rose 21 percent to $25 million, and miscellaneous expenses doubled to $24 million.
“We are not immune to cyclical downturns; however, we will not lose focus on our core business and will continue to improve our efficiency, reduce costs and maintain a strong balance sheet,” Adaro president director Garibaldi Thohir said.
Production and sales by volume were “virtually flat” during the first half, as Adaro produced 23 million metric tons and sold 23.7 million metric tons, he said. Because it sold more than it produced, Adaro bought coal from smaller miners and it also has stockpiles of coal as inventory.
The company revised down its production target this year to a range of 48 million to 51 million metric tons, from 50 million to 53 million tons previously, “due to challenging market conditions.”
Coal prices have been declining amid a glut in global supply from the United States and nations in Africa. Slowing demand from China, Indonesia’s biggest export market, is also pushing prices for coal lower, and the slump might affect profit for local coal producers during the second half of the year. Indonesia, with proven coal reserves of 20.8 billion tons, is the biggest exporter of thermal coal in the world.
“All of our sales volume for this year has contracted and the bulk of it has already been priced based on fixed price and index-linked contracts,” Adaro said in the statement. “We continue to maintain good relationships with our customers and none of our coal shipments have been deferred.”
Adaro is also re-evaluating the timing of its capital expenditures in an effort to preserve cash. The original spending guidance for 2012 was $650 million to $700 million but now has been revised to $400 million to $500 million.
“The largest reduction in spending will be for heavy equipment as our current fleet provides us adequate capacity for our production targets,” the statement said.
Harum Energy, a coal miner controlled by the Kiki Barki family, posted first-half net income of $89.62 million, up 23 percent from a year earlier, as revenue surged 71 percent to $583 million.
Frederick Daniel Tanggela, an analyst at Trimegah Securities, said revenue for the first half had already hit 70 percent of Trimegah’s full-year target.
“With these better-than-expected sets of results we will review our 2012 sales volumes estimate and upgrade our 2012 forecasts,” Frederick said in a report released on Friday. In terms of stock valuation, Frederick said Harum was the best performer in the second quarter out of seven coal companies he covers. He maintained his “buy” recommendation with a stock price target of Rp 6,700.
Harum said earlier that it was targeting to increase production this year by 30 percent to about 13 million tons, with sales volume expected to mirror the growth rate in production. In 2011, the company sold 10.4 million tons, with the balance of its production coming from third-party sources.
Shares of Adaro rose 1.5 percent to Rp 1,370 at the IDX on Friday. They have lost 23 percent so far this year. Harum lost 0.9 percent to Rp 5,850 on Friday, bringing its decline this year to 17 percent. In comparison, the Jakarta Mining Index — which tracks coal mining companies — has lost 25 percent for the year.
S hares of Bumi Resources, the country’s biggest coal miner, jumped 11 percent to 700, halting a four-day, 38 percent decline. Bumi signed a deal to sell its 50 percent stake in an unlisted coal unit operated by Fajar Bumi Sakti for $200 million, according to Dow Jones Newswires. That money could help cover debt payments of $600 million owed to China Investment Corp. by end of the year. Dileep Srivastava, a director at Bumi Resources, declined to comment.