20220104-招银国际-INDYIJ_–_Short-lived_impact_from_Indonesia_export_ban_on_coal_4页_434kb

CMBI Credit Commentary Summary

Core Content

The CMBI Credit Commentary provides an analysis of Indika's (INDYIJ) financial performance and outlook for 2021 and 2022, focusing on the impact of the Indonesian government's export ban on coal in January 2022. It outlines key financial metrics, the effect of the export ban, and the company's strategic initiatives.

2021 Financial Performance

• Revenue Growth: Indika's revenue for the first nine months of 2021 (9M21) reached USD 2,155 million, a 43% increase year-over-year (yoy).
• Production Volume: Despite heavy rainfall, production volume rose to 28.2 million tonnes (mt), a 13% yoy increase.
• EBITDA: EBITDA tripled to USD 509 million for 9M21.
• Debt and Cash Position: Gross debt was USD 1,611 million, and cash was USD 712 million at the end of September 2021, resulting in a reduced Debt/EBITDA ratio to mid-2x.
• Cash Flow: Discretionary cash flow for the full year 2021 is expected to be between USD 150 million and USD 200 million, after accounting for USD 120 million in capital expenditures, USD 280 million in taxes, USD 100 million in interest expenses, and a potential USD 50 million dividend.

Impact of the Export Ban in January 2022

• Export Ban: The Indonesian government imposed an outright export ban on coal for January 2022 due to low domestic coal inventory.
• Revenue Impact: This ban is expected to temporarily suppress Indika's revenue in January 2022 as domestic coal sales are subject to a price cap.
• DMO Compliance: Indika has been fully compliant with the Domestic Market Obligation (DMO) requirements and is expected to resume exporting after January 2022, while continuing to meet DMO obligations.
• Industry Response: Industry practitioners are expected to seek government review on 5 January 2022 to ensure the export ban is only applied to non-compliant miners.

Outlook for 2022

• Benchmark Coal Price: The report anticipates that the 2022 average benchmark coal price will remain relatively high compared to historical levels.
• Price Moderation: There may be a temporary moderation in coal prices in the first quarter of 2022 due to reduced manufacturing activity during the Chinese New Year and the Beijing Winter Olympics.
• Alternative Energy Prices: High prices for alternative energy sources like oil and gas, influenced by sporadic production disruptions due to the pandemic, are expected to keep coal prices elevated.

Strategic Initiatives

• MBSS Disposal: In October 2021, Indika disposed of its 51% stake in MBSS, a coal barging and transshipment subsidiary, which contributed 7% to Indika's EBITDA. The disposal generated USD 41 million in proceeds, which will be used for non-coal diversification initiatives.
• Non-Cash Loss: A non-cash loss of USD 100 million was recorded from the disposal of MBSS.

Key Contacts

• Polly Ng 吴宝玲: (852) 3657 6234 | pollyng@cmbi.com.hk
• Glenn Ko, CFA 高志和: (852) 3657 6235 | glennko@cmbi.com.hk
• James Wen 温展俊: (852) 3757 6291 | jameswen@cmbi.com.hk
• CMBI Fixed Income: fis@cmbi.com.hk

Author Certification

• The author certifies that the views expressed accurately reflect their personal views.
• The author has no financial interest in the companies discussed and has not traded in the stocks covered in the report within 30 days prior to its issuance.

Important Disclosures

• Risks: There are risks involved in transacting in any securities, and the report is not a recommendation for investment.
• Liability Disclaimer: CMBIS is not liable for any loss, damage, or expense incurred from relying on the report.
• Use of Information: The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.

Disclaimer

• United Kingdom: The report is only provided to persons falling within specific categories under the Financial Services and Markets Act 2000.
• United States: The report is intended solely for "major US institutional investors" and not for general distribution.
• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser, and is subject to Singaporean regulations.

Conclusion

The export ban in January 2022 is expected to have a short-lived impact on Indika's revenue, with the company likely to recover its export volume while maintaining compliance with DMO. The outlook for 2022 remains positive, with coal prices expected to stay relatively high due to the sustained demand and elevated alternative energy prices. Indika's financial performance in 2021 was strong, with significant revenue and EBITDA growth, and the company is actively pursuing non-coal diversification strategies.