April 15, 2025
Built From the Inside Out

Market Commentary
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The coal royalty revision currently being drafted by Indonesia’s Ministry of Energy and Mineral Resources could be a breath of fresh air for coal miners, especially IUPK holders like INDY.

Under the proposed regulation, the upper limit for HBA would be raised to USD 180/ton, while the maximum royalty rate remains capped at 28%.

 


This means when coal prices are low, the royalty burden could decrease significantly, directly boosting bottom-line earnings. For INDY, the impact could be substantial.

Our analyst’s simulation shows that every 1% reduction in the royalty rate could increase INDY’s net profit by up to 16%.

 


If HBA stabilizes at around USD 100/ton, the royalty rate could drop to 18% from the base assumption of 23%, potentially lifting INDY’s net profit to USD 48 mn, an 82% jump from current levels.

Although INDY posted a net loss of USD 24 mn in 4Q24 due to pressures from Kideco, it still managed to book a FY24 net profit of USD 10 mn.

 


Kideco, INDY’s main coal asset, generated USD 1.8 bn in revenue in 2024, down 17% due to a lower average selling price of USD 59.4/ton.

Despite the price drop, Kideco remained resilient, posting operating profit of USD 139 mn. Sales volume remained solid at 31.1 mn tons, while production slightly increased to 30.7 mn tons.

 


Cash costs fell 14% to USD 53.3/ton, driven by cost efficiencies and a stable strip ratio of 5.7x, helping to preserve profitability even amid falling prices.

Revenue and operating profit came in strong at USD 2.4 bn and USD 158 mn respectively, meeting 97% and 106% of analysts’ estimates.

 


Excluding one-off items, INDY’s normalized net profit actually reached USD 36 mn, 88% of target, reflecting a solid underlying performance despite the challenging backdrop.

Looking ahead, INDY’s outlook remains promising. Management expects production to stay flat at 30 mn tons in 2025, in line with this year.

However, we forecast operating profit to surge to USD 260 mn, up 157% yoy, supported by potential royalty cuts and further cost efficiency.

Given the strengthening fundamentals and positive regulatory sentiment, we maintain our BUY recommendation on INDY, with a target price of IDR 3,100.
 

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