*Credit Suisse: Indonesia Coal Sector - Cheaper option.* ● The coal sector has been underperforming the Indonesian market trading at 10x FY12E P/E. The sector now trades at a 28% discount to the JCI. Compared to other regional players, Indonesian coal stocks offer a cheaper option, given that they trade at a 13% discount to their Chinese peers. ● We are bullish on our coal price assumptions as we still see strong demand from China and India . The risk is on the supply side from Indonesia as domestic consumption is set to increase with new power plants coming on stream to support the country’s economic growth. ● The risk to our call would be if railway infrastructure in Mongolia , India, and at PTBA were completed on schedule, which would bring a lot of coal to the market. ● Our top picks in the sector are ITMG, HRUM and PTBA. HRUM has a more attractive valuation, with strong volume growth and not much cost increase as it is operating relatively new mines. ITMG provides better liquidity and no corporate governance issues. CS picks in the sector, in the order of preference, is: Indo Tambangraya (ITMG, O, PT Rp50,000): Still Looks Attractive After Earnings Cut Harum Energy (HRUM, O, PT Rp10,000): Strong Cash Flow and Volume Growth Bukit Asam (PTBA, O, PT Rp25,000): Railway Projects to Materialize
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