January 15, 2025
The Shining Coal

Market Commentary
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The Net Zero Asset Managers Initiative (NZAM) has temporarily suspended its activities as of January 13, 2025, to undergo a comprehensive review following the departure of financial giant BlackRock on January 9, 2025.

A press release from the Texas Attorney General’s Office says: “Blackrock, Vanguard, and State Street utilised the Climate Action 100 and the Net Zero Asset Managers Initiative to signal their mutual intent to reduce the output of thermal coal, which predictably increased the cost of electricity for Americans across the United States.”
 

On the back of this issue, we believe coal is here to stay. As an affordable source of energy, coal can help manage inflation as countries strive to reduce it.

When we talk about coal, the top pick that pops right away is certainly AADI.

We see that aside from what mentioned above, we see several sentiments that can boost AADI in the short run.

Rumors has been circulating on the street stating that Beckett is planning to acquire AADI's stake for up to 45%. This would make Beckett and Adaro Strategic (ASI) an equal partner in AADI.

In 2022, government increased coal export royalty which burden several coal companies. That said, recent words on the street says that government may introduce a new scheme that could reduce the coal export royalty by 5-9 percentage points. This could lead to a 15-27% rise in profit for AADI from our base case.
 

There is also unresolved geopolitical tensions which is likely to increase potential supply disruption from Russia and the Middle East. This issue could boost sentiment towards the energy sector as energy prices may surge higher.
 
Coal and Oil Price Correlation


Some of the things mentioned above is actually quiet general, it applies to othe coal comapnies and not just AADI. What we believe puts AADI on top among the other coal companies is that AADI offers an appealing valuation and lucrative dividend yield, currently trading at c. 4.8x 2025F PE with around 12% dividend yield.

These strong tailwinds mentioned is likely to provide a compelling case for a significant re-rating. Therefore, we maintain BUY with a TP of IDR 30,100 per share.

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