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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