Indonesia's coal production kept on climbing over the years. From 564mn ton in 2020 to 775mn ton in 2023, which is far above its initial target of 695mn ton. 2024 showed an even better growth, from its initial target of 710mn ton, government has revised the target to 922mn ton.
The robust coal demand growth was mainly attributed by two factors, the demand surge caused by the addition of new 35 GW Steam Power Plants projects as well as the disruption of alternative energy as mentioned earlier this week on the news by the Minister of Energy and Mineral Resources.
We see that even with lower demand trend from China and other Indonesia's trade partner, coal price still managed to trade higher than before the last commodity cycle while domestic consumption also remain stable. Therefore, we see companies involved in the mining services are likely to grow along with coal production growth.
China 1 Year Historical Coal Import (in Metric ton)
Source: Bloomberg
From several mining services companies, we see that TPMA stands out among the others. As seen from their 4Q23 result, TPMA achieved its highest profit of USD7mn in 4Q23, a +61% QoQ/+38% YoY increase. This robust growth was mainly driven by TLP, its 30%-owned JV which contributed USD1mn or 21% to TPMA's bottom line, making its full-year 2023 earnings beat estimates at USD20mn (+38% YoY).
With the commission of TLP in 4Q23, we are confident that TPMA has a great chance to book 20% bottom line growth in 2024 as TLP has fully operate throughout 2024. We expect TPMA to record 15% CAGR in volume over the next four years, from both its existing operation and JV. This stronger volume should also translate to better earnings performance, which is estimated to grow by 10% CAGR over the same period.
Source: Bukit Asam, Sucor Sekuritas Research
To top the attractiveness from the strong TLP JV performance, we also see that barge rate remained relatively favorable as barge market continues to be in tight supply condition. Our channel check indicates that buying a new vessel will approximately took around 2 years waiting time, making it harder for the vessel supply to catch up freight demand.
Source: Trans Power Marine, Sucor Sekuritas Research
Aside from the solid historical growth, recently TPMA announced that they are planning to do right issue for organic and/or inorganic growth. As reported, TPMA could raise as much as 30% of its equity, a sizeable capital to help grow in an even faster pace. As of our last meeting with the management, the right issue is believed to be earnings accretive. This confidence was backed by management's statement that any kind of barge or equipment bought has already allocated to certain project, therefore management believes that no capital is going to be wasted.
Considering all of the above, we reiterate our BUY rating with a higher DCF-based TP of Rp860 to account for the stronger-than-expected earnings. Our analyst's TP implies 5.4x and 4.2x of 2024F PE and EV/EBITDA.