New Owner, New Prosperity

Updates on the EPC projects. PTRO is still working on 8 EPC projects, mostly from PT Freeport Indonesia, with a total contract value of USD 518 million. By the end of Oct-23, PTRO had pocketed a turnover of USD 219 million (42.3% of the total contract value) from these projects, and there is still around USD 299 million dollars left to be recorded until the end of 2026F. We believe these projects will give a solid foundation for PTRO in the future, as we project the company’s EPC revenue to reach USD 130 million (+50.0% YoY) in 2023F and USD 137 million (+5.0% YoY) in 2024F.

New projects from new owner. PT Petrindo Jaya Kreasi Tbk (CUAN) plans to acquire 34% of PTRO shares through its subsidiary PT Kreasi Jaya Persada (KJP). KJP signed a conditional share purchase agreement on November 7, 2023 with PTRO’s controlling shareholder, PT Caraka Reksa Optima (CRO). KJP plans to take over 342.9 million  PTRO shares (34% of issued and paid-up capital). Meanwhile, CUAN management stated that after the transaction is completed, KJP will become PTRO’s new controlling shareholder. Based on PTRO’s closing price on November 7, 2023 of IDR 4,240 (5.7x FY23F P/E), the transaction value will reach IDR 1.5 trillion. We believe the acquisition will benefit PTRO, mainly due to the potential of new projects from CUAN and Barito Group’s ecosystem. Also, there’s a possibility of a tender offer from the new owner to minority investors.

2023F and 2024F outlook. Despite the drop in ASP as coal prices started to normalize from 2022 levels, PTRO managed to book a better overburden removal volume than last year, reaching 109.4 million BCM by the end of 10M23 (+7.4% YoY) with a higher stripping ratio of 7.8x which may help offset the drop in ASP. Lower coal prices caused miners to reduce production, as reflected by the 10M23 coal production volume that only reached 14.1 million tons (-11.5% YoY). All in all, we still believe that PTRO can post solid numbers in 2023F and 2024F, mainly due to 1) Higher overburden removal volume, 2) new contracts, and 3) the shift in position from just a mere contractor to a mine owner. We project PTRO to book revenues of USD 537 million (+12.8% YoY) in 2023F and USD 566 million (+5.4% YoY) in 2024F.

BUY, TP IDR 4,500 (5.3x FY24F P/E). Since the publication of our initiation report (3/30), PTRO’s share price has plunged by -25.6%. Even so, we maintain an optimistic view on PTRO, supported by the potential of new contracts from its new owner and its overburden removal volume growth. We reiterate our BUY rating on PTRO with a TP of IDR 4,500, implying 5.3x FY24F P/E (+0.5 SD above its 5-year P/E average). Risks: 1) Lower-than-expected volume, 2) Lower-than-expected coal prices.