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Hooked on Coal

Overcoming a substance addiction is a formidable challenge- the same can be said for Indonesia's coal dependency.

Despite the escalating pollution concerns, the transition away from coal might remain an elusive goal in the near future. It’s economics as much as politics that have hindered Indonesia’s headlong drive toward renewable power.

While wind and solar energy have gained increasing prominence in other nations, it's important to note that their adoption is primarily because they’re able to produce electricity at a lower cost than the alternatives.

Indonesia is a rare exception. Its reserves of coal are vast and cheap, making it the biggest exporter. Wind speeds close to the equator tend to be low, so it means ill-suited for generating much power that way. Cloudy skies and year-round warmth that reduces the efficiency of solar panels.

Hence, as of 2022, approximately 80% of Indonesia's electricity is still generated from coal. This is compounded by government policies that mandate miners to sell a quarter of their product to domestic power generators at prices frequently lower than the production cost, resulting in subsidies from the country's export sector.

Seems like coal is not going away anytime soon…

These ensures a positive outlook for TPMA, further strengthened by the recent injection of the recent additional Rp1tn credit facility from BCA for the acquisition of tugboats and barges. This cash infusion significantly enhances the feasibility of the joint venture's operations.

Source: Sucor Sekuritas

Based on our channel check, the tug and barge set is at ~USD3 mn. Therefore, Rp1tn translates to ~21 sets of tug and boats. TPMA expects to get 60 sets in the next four years, nearly doubling down on TPMA’s current 35 sets.

With TPMA aiming for a 15% CAGR in volume over the next five years, achieving this goal would require the addition of 37 sets by 2028F. Additionally, net profit is projected to double from USD 14 mn in 2022 to USD 28 mn by 2028F.

As for TPMA’s performance this quarter, we have seen increased coal export volume in 3Q23 historically due to higher coal exports as China builds up its coal inventory before winter. Coupled with TPMA's acquisition of additional fleet this year, we are confident that this growth aligns with our target.

In conclusion, we've increased our TP to Rp 840, taking into account the potential for an earlier joint venture operation and better-than-anticipated rates. Our target price reflects multiples of 6.9x and 4.1x of 2024F PE and EV/EBITDA. Happy to disucss our calls!

Read our full report here:

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