----- Forwarded Message ---- * I met with Resources Alam (KKGI), a smaller-cap $620mn thermal coal producer (daily turnover $580K), located in E.Kalimantan with estimated reserves of 73mt. * Shr px hs surged 42% YTD on the back of doubling in production in 2010 and ensuing strong revenue/net profit growth +138%/+418% YoY. But fret not, plenty of upside if KKGI continues to deliver and overshoot its conservative FY11 target (volume +58% YoY, rev +95%, NP +149%). So far 1Q has been on track, and indication for 2Q and rest of the year look favorable. But shr px hs been relatively stagnant in the past 1.5mths, I sense market is waiting for release of 2Q, I'd buy ahead of expectation of good 2Q and KKGI's strong growth story. * Guides for FY11 net profit at Rp413bn, translating into 12.5x '11 PE (sector ), with production & margin risks skewed to the upside. i) FY11 production target is 3.55mt. 1Q11 was 846K tons, April & May achieved 360K & 375K tons, indication for June is >400K, hence 1H could reach ~1,981tons or 56% of FY11, and the trend is rising production month to month as new sites are being open and machineries added. ii) ASP guidance is $59.8/t. So far has priced 1.7mt (48% of FY11 volume est') at $63, latest sales of 400K ton was priced at $74. iii) Cost guidance is $28.4/t (2010: $24), but cost was stable at $24 in 1Q11. iv) Based on the above guidances, net margin could increase to 21.8% from 17.1% in 2010. * Going forward, KKGI hinted 2012 production could reach 5.5mt +38% YoY, assuming flat assumptions, 2012 PE is ard 8x.. Higher ASP is also likely as production at Separi mine (30% of total area) with higher CV 6000-6300kcal will start in 1Q12 (currently large portion of CV 5200-5800kcal).
