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Post the coal spin-off under AADI, ADRO, poised to be Indonesia’s green energy leader, is undergoing major transformation into renewables and greener projects. ADRO’s current earnings stem from ADMR (83.8% ownership), backed by significant coking coal reserves (the largest: 158 Mt), and SIS (100%) with its efficient mining operations, of which both have robust EBITDA margins. Beyond traditional mining, ADRO’s foray into several renewable and green initiatives will be supported by cheaper financing opportunities to help offset near-term earnings challenges, although we still expect ADRO to book positive 2025-26F bottom-line. We argue that ADRO’s higher P/E due to the spin-off is warranted as the company realigns its valuation closer to its new peers (figure 13). Thus, we retain our BUY rating with new TP of IDR 3,400 (SOTP-based), reflecting 12.8x P/E 2025F.
ADMR and Saptaindra Sejati (SIS) as Current Key Earnings Drivers. Following the recent spin-off of its coal business, ADRO’s earnings will be predominantly driven by two key assets: ADMR (metcoal business; 83.8% ownership) and SIS (mining contractor; 100%). ADMR boasts significant coking coal reserves of 158 Mt with annual production of 5 Mt and stripping ratio of 3.6x, translating to 2025F revenue of USD 1.1 bn (-7% YoY) and >50% EBITDA margin. As for SIS, we expect the company to process 195 mbcm of overburden at USD 0.57/mbcm, generating USD 111mn in revenue. Together, these assets are projected to bring ADRO’s 2025F consolidated revenue to USD 1.3 billion (-77.9% YoY), with EBITDA of USD 705 million (-72% YoY).
Renewables & Green Projects with Significant Potential. Aside from its metcoal and mining contracting businesses, ADRO holds significant green projects waiting to be monetized through Adaro Green and ADMR. Those projects include Indonesia’s largest hydro power plant (expected COD in 2030) with installed capacity of 1,375 MW, capable of generating power up to 9 TWh per annum, and aluminum smelter development in Kaltara Industrial Park yielding potential green aluminum production of 1.5mn tpa. Note that the AADI spin-off will provide ADRO with better access to green financing at favorable rates (sub-9%), improving blended cost of capital. Thus, these green assets will serve as future catalysts for ADRO’s re-rating.
Warranted re-rating with adj. TP of IDR 3,400 – BUY. As ADRO embarks on its greener path, valuation re-rating is in order, particularly when compared to its new peers (figure 13). Versus its blended metcoal-renewable comps, ADRO’s valuation is attractive on 33.8% discounts. That said, untapped green assets, solid balance sheet, ADMR and SIS’ contributions, and positive 2025F earnings of USD 504mn (from USD -141 mn in 2024F post-AADI spin-off) have us retaining our BUY on ADRO with revised TP to IDR 3,400 (SOTP-based), reflecting 2025F P/E of 12.8x. Downside risks: commodity price volatility, operational delays, and financing issues.
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