Delta Dunia Makmur (DOID IJ) Slightly above expectations
Full year production slightly above target. DOID reported Dec-18 OB and coal production of 31.5mn bcm and 3.4Mt. This brought full year production to 392.6mn bcm and 42.1Mt (+15.4% and +4.7% YoY), slightly higher than our year-end target of 392.0mn bcm and 41.3Mt. SR decreased slightly from 9.6x in Nov-18 to 9.3x in Dec-18.
Bullish 2019 production target. We forecast 2019 OB and coal production to reach 490.9mn bcm and 66.0Mt (+35.9% and +56.8% YoY), which implies lower SR at 7.4x as we expect coal price to decline by 10% in 2019. Robust production growth is supported by contribution from new contracts acquired in 2018, i.e. AJE, TBR, IBP and IP.
Expecting demand recovery after Chinese New Year. We expect weak Chinese coal demand in January as 1) industrial activities are expected to slow down towards Chinese New Year and 2) abundant level of stocks of China’s coastal power plant, with current inventory ranging between 20-22Mt. Going forward, we believe Chinese demand will recover after the festivities, following similar pattern as shown in previous years.
Temporary price increase in January following coal mine accident. Due to recent coal mine accident in Shaanxi, most local mines have halted operations as urged by local government. This event opens the opportunity for temporary rise in CCI import index, especially higher CV coal. As of Jan 16, 2019, Fenwei CCI Index for Indonesia 4,700 NAR (~5,000 GAR) has increased by $1.1/t YTD from $54.3/t to $55.4/t.
Maintain BUY as outlook remains solid. Following decent operational results in 2018, we continue to like DOID for its strong order backlog to support 2019 revenue growth, while maintaining cost efficiency. We maintain our BUY call with unchanged TP of IDR1,700.
