Indonesia Daily Focus November 30, 2020
Coal sector outlook – Buoyant optimism
We
maintain our assumption on China’s full-year 2021-22F coal production
at 3.49bn tonnes (+2.7% YoY) and 3.51bn tonnes (+0.6% YoY),
respectively. Of a note, we project China’s full-year 2020F coal
production to stand at 3.32bn tonnes. Thus, we retain our average
full-year 2021-22F global coal price assumption at USD70.0/tonne and
USD75.0/tonne, respectively. We think that China’s electricity
consumption would improve further after being hit by the COVID-19
pandemic effect in early 2020.
To
give more value added for the nation’s economy, the Indonesian
government is getting more serious in supporting coal players which can
integrate their coal business into downstream coal sector by giving them
zero royalty. We note that PTBA would integrate its coal business into a
coal-to-chemical plant through a joint venture with Indonesia’s giant
oil & gas SoE company (Pertamina).
As
we maintain our average full-year 2021-22F global coal price
assumption, we retain our Overweight stance on the coal sector.
Meanwhile, we change our top pick from Adaro Energy (ADRO) and Indo
Tambang Raya Megah (ITMG) to Bukit Asam (PTBA) as we think that PTBA
would benefit from the zero royalty policy due to its coal downstream
business plan although we haven’t included this in our financial
forecasts of PTBA. Our downside risks are lower global coal prices and
changes in regulation.
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