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The Coal Digger

Coal outlook may not look so good nowadays. Some investors sees that the price is likely to go lower going forward as the demand could not keep up with the supply.

Not so long ago Indonesia announced to ramp up its coal production from 775mn ton to 922mn ton, I'd say that is a significant hike. Although this 19% volume hike may seem to boost market's confidence, it is actually a double-edged sword as it may hit coal price if there's no demand hike which follows.

That said, since the last commodity cycle, ICE Newcastle coal price managed to maintain its price above pre pandemic amidst global economy slowdown. Until this sales notes was written, ICE Newcastle was recorded at USD129 per ton, far above pre pandemic level which average was below USD90 per ton.

5 Years Historical Coal Price Chart

Source: TradingEconomics

The price may have shown that current coal price have found a new equilibrium. Should the bad news has actually been priced-in, then we believe the outlook could be much better than how we thought it was.

Due to this hypothesis, we look back into coal stocks once again and did found some interesting stocks. ABMM managed to find its way to the top because of its undemanding valuati8n, trading at 2.05x PE and 0.97x PBV.

Aside from its undemanding price to book value, we maintain our positive view on ABMM due to its diverse business with 40% of its EBITDA contributed from mine contracting business, the kind of business you want to pick considering Indonesia's coal production ramp up. This also means that ABMM performance should be less volatile than other coal miners towards coal price volatility despite also benefiting from higher coal price.

Source: RTI Business

From the technical analysis, we also see that ABMM share price has successfully broke through its recent high of IDR 3,680, making way for the price to go as high as IDR 4,300 to test the next resistance.

ABMM share price

Source: Stockbit

Although some say that the risk on coal industry may be bigger than nickel industry as it may have bottomed, yet we believe the upside from coal remain lucrative due to Indonesia's dependency on coal power plant. Until Indonesia managed to shift to a new source of power that can cater the whole power demand, this new coal price equilibrium could be a stable headwind for coal related stocks.


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