Major Transformation Underway

Strong growth on the shift to greater in-house contracting business model. DEWA, arguably the only fast-growing mining contractor in the sector, is undergoing a major transformation as it shifts toward greater in-house contracting business model, paving the way for massive margin expansions and EPS growth. In this process, we project the contribution from DEWA’s own fleet to reach to 60% in 2025F (from 46% in 2024), and further rise to 79% in 2026F, as new heavy equipment are expected to arrive in 2026F and to be fully utilized in 2027F. The transition will boost DEWA’s 2025F EBITDA margin to 26.5% (2024: 14.2%; 1Q25: 24.7%), before further improving to 40.3% in 2026F and 43.1% in 2027F. In the past, given 54% of total overburden being handled by subcontractors, DEWA’s 2023 EBITDA margin stood at only 14%, way below its peers (25%), leading to financial and share underperformance. However, with this major efficiency initiative, we now see 2024-27F earnings CAGR at 289.0%.

Balance sheet repair to allow for capex and more than doubling in capacity. In 2024, DEWA underwent a major balance sheet repair through conversion of its USD 83mn (IDR 1.4tn) debt into equity through a Non Pre-emptive Rights Issue (NPR). The move helped recover DEWA’s current ratio to 1.0x (+25.0% QoQ) and reduced its debt-to-equity ratio (DER) to 0.4x, enabling the company to access bank loans. Following IDR 2.6tn loan from BCA in 2024, DEWA will have the ability to effectively more than double its current capacity from 57 mbcm to 122 mbcm by 2025, before further rising to 150 mbcm by 2027.

Higher production to maintain coal mining contracting business sustainability. While we believe weak coal environment may persist for some time, we remain optimistic about Indonesia’s mining services industry. Our analysis shows that when global coal prices hit their six-year low of USD 58.2/ton (-25.3% YoY) in 2020, mining fees in Indonesia were relatively unaffected, declining only to USD 2.3/bcm (-3.3% YoY). Looking ahead, we expect Indonesia’s coal mining activity to remain robust; according to 2021-2030 RUPTL, coal’s portion in Indonesia’s energy mix is projected to remain strong at 59.8% in 2030 (current: c.61%).

Re-initiate with BUY and IDR 350 TP. We re-initiate coverage on DEWA with DCF-based TP of IDR 350, implying 112.1% upside. To derive valuation, we employed 5-year DCF-FCFF approach, factoring in compelling earnings growth in the next 5 years driven by fleet expansions, 3% terminal growth rate, and 6.9% risk-free rate (10.2% WACC). This translates to EV of IDR 14.3tn and reflects FY26F EV/EBITDA of 6.0x, a sector premium, justified by 2026F EPS growth of 116%. Key risks: weather disruptions, delays in RKAB approval, and delays on heavy equipment.