With the coal industry expected to remain weak - due to the global supply glut in combination with weak global economic growth (especially in China, the world's largest energy consumer) - Adaro Energy is increasingly moving into (downstream) power generation in line with the government's ambitious program to add 35,000 MW to the country's power capacity by 2019. The company is close to concluding the financing scheme to construct two 100 MW power plants in South Kalimantan, worth about USD $4.5 billion in total. Through the creation of a joint venture with Japan's Itochu Corporation and Electric Power Development Co Ltd (J-Power), Adaro Energy is building the 2 GW coal-fired Batang plant in Central Java. This plant is controversial as not all local residents want to sell their land to the project owners.

Adaro Energy also made a strategic alliance agreement with state-owned energy company Pertamina in late-2015. Through this agreement Pertamina will supply Adaro Energy's fuel needs (between 400,000 kiloliters and 550,000 kiloliters per year) for the next seven years, while Pertamina can rent and utilize a fuel terminal owned by a subsidiary of Adaro energy.

Coal Production Adaro Energy

Febriati Nadira, Head of Corporate Division at the listed coal miner, said the company targets to produce between 52-54 million tons of coal in 2016, roughly similar to the company's coal output last year.

Indonesia's reference thermal coal price (Harga Batubara Acuan, or HBA), which is a monthly rate set by Indonesia's Ministry of Energy and Mineral Resources, declined 0.58 percent month-on-month (m/m) to a new record low of USD $53.20 per metric ton (FOB) in January 2016, down 16 percent year-on-year (y/y) from the same month one year earlier. Coal mining companies must be wistfully remembering the 2010-2012 period when global coal prices went above USD $100 per ton (in 2011 the Newcastle Intercontinental Exchange in fact touched USD $139 per ton). This golden era for coal may never return.

Future Projection Adaro Energy's Financial Highlights:

    2014    2015F    2016F
Net Revenue    3,722    3,285    3,325    2,848    2,434
Net Profit     385     247     178     202     136
EBITDA    1,137     822     877     839     881
     2.9      3.3      2.9      3.3      3.4
P/E Ratio (x)      3.1      4.9      6.8      6.0      8.9
P/BV (x)      0.5      0.4      0.4      0.4      0.4

in million USD, unless otherwise stated
Source: JP Morgan