Toba Bara?s net profit drops more than 43%

By Romel S. Gurky

IDX-listed coal miner PT Toba Bara Sejahtra Tbk said that net profit last year dropped by 43.2 percent to US$14.6 million last year compared to the previous year due to lower average selling price and sales volume.

The company said in a statement on Wednesday that sales last year fell by 25.9 percent to $258.3 million, compared to that in 2015 as a result of weaker average selling price ASP and lower sales volume. ?However, the company was able to maintain stable gross profit margin and EBITDA margin,? Toba Bara said.

Toba Bara said ASP contracted by 17.2 percent y-o-y from $54.8 per ton in 2015 to $45.4 per ton in 2016, while NEWC Index price rose by 11.5 percent y-o-y over the same period. The firm said the widening in spread between ASP and NEWC Index was due to the company?s marketing initiative of securing 2016 sales volume contracts with customers in late part of 2015 and early part of 2016 at predominantly fixed price, while NEWC Index only started to increase significantly in the third quarter of 2016 (3Q16) and 4Q16.

The company currently has four operating subsidiaries, three in coal mining namely PT Adimitra Baratama Nusantara (ABN), PT Indomining (IM), and PT Trisensa Mineral Utama (TMU) located in East Kalimantan.

The company said production volume of 1.4 million tons in 4Q16 was generated by all three subsidiaries of ABN, IM and TMU, contributing 0.9 million tons, 0.2 million tons, and 0.3 million tons respectively. ABN remained the largest contributor to the company?s overall production volume. Such production number came in line with the 2016 production guidance of between 1.25 - 1.50 million tons, enabling the company to remain on track in achieving the full year production target of 5 - 6 million tons. Toba Bara said previously that production for this year is likely to be flat at around 6 million tons.

Stripping Ratio (SR) slightly rose from 12.3x in 2015 to 12.9x in 2016 primarily due to normalization of ABN?s mining activity after pre-stripping activity in opening a new pit. Nevertheless overall SR came in in line with the guidance of 12x - 13x.

Cost of goods sold slipped by 26.3 percent y-o-y, resulting from combination of declines in FOB cash cost by 18.2 percent and in production volume by 9.8 percent. Despite increase in SR in 2016 compared to in 2015, the company demonstrated cost management initiatives and better execution of mine plan, which resulted in lower cash cost. One of the key operational initiatives undertaken in 2016 was the engaging of new mining contractor, PT Cipta Kridatama (CK) a subsidiary of PT ABM Investama Tbk at IM in April 2016, and at TMU in September 2016. As ABN has already engaged CK since 2Q15, to date, ABN, IM, and TMU each has engaged CK as its mining contractor, which is expected to improve overall operational efficiency through synergy among the three adjacent mines within the Toba Bara Group.

Despite a 27 percent y-o-y drop in EBITDA in 2016 from $53.7 million in 2015, the company managed to maintain stable EBITDA margin at 15 percent level over the period. This was attributable to its ability in achieving continuous cost efficiency program such as better execution in mine plan, hence resulting in lower FOB cash cost.

For the past few years, the company said it has been continuously improving cost efficiencies by running executable mine plans that meet the combined objective of achieving profitable targets and preserving reserves. Going forward, the company envisions becoming a well-diversified energy company by 2020, whereby EBITDA contributions from the power business is expected to account for at least half of the company?s total EBITDA.

This will translate to more capital expenditure (Capex) realization for the power business as of 2017 onwards.

Mine Plan Execution and Cost Management Discipline 2017 production and SR are targeted at similar numbers as in 2016 of 5 - 6 million tons and 12x - 13x respectively. The company said it will also maintain such cash cost level that has been achieved over the last few years through cost management initiatives.

The company said it plans to continue to build well-diversified market destinations and customer base, maintaining product quality and timely delivery, as well as optimizing the current favorable coal price into the company?s ASP.

Toba Bara said total capex for 2017 is estimated at $60 - 65 million, of which 85 percent ? 90 percent will be allocated for the EPC phase of the 2x50 MW Sulbagut-1 coal-fired power plant project in Gorontalo, with the balance for the mining business, i.e. land acquisition, and infrastructure/heavy equipment.

In translating the company?s vision, Toba Bara said it will continuously seek for opportunities in sourcing new power projects, which include, among others, renewables. ?This will be done through participation in IPP tenders as well as through acquisition of existing power assets.?

Editing by Reiner Simanjuntak