[%78I3%] Indika Energy (INDY.JK) CITI

Initiate at Buy: Emerging Hidden Gem
  

•  Riding the coal turnaround, improvement across its subsidiaries – We initiate Indika Energy (INDY) at Buy and with a TP of Rp5,375 (after applying a 15% discount to our SOTP-based fair value) that translates to a total return of 56%.
•  Kideco acquisition will be the earnings kicker – INDY has raised its stake in Kideco (the 3rd largest coal miner in Indonesia) to 91% from 46%. Kideco is estimated to account for 79% of Indy’s EBITDA in FY18E.
•  Petrosea set for turnaround – 69.2%-owned PTRO was loss-making in 2015-16. Given the recent turnaround in coal prices, we expect PTRO’s bottom-line to be back in the black in 2017E.
•  Valuation is attractive at core PER of 5.8x – INDY is trading at a core 2018E P/E of only 5.8x, a 53% discount to Indonesian peers.  Our TP of Rp5,375 translates to a core 2018E P/E of 9.0x, 38%/27% discounts to regional/Indonesian peers.



$INDY Indika Energy (INDY.JK) CITI

Initiate at Buy: Emerging Hidden Gem
  

•  Riding the coal turnaround, improvement across its subsidiaries – We initiate Indika Energy (INDY) at Buy and with a TP of Rp5,375 (after applying a 15% discount to our SOTP-based fair value) that translates to a total return of 56%.
•  Kideco acquisition will be the earnings kicker – INDY has raised its stake in Kideco (the 3rd largest coal miner in Indonesia) to 91% from 46%. Kideco is estimated to account for 79% of Indy’s EBITDA in FY18E.
•  Petrosea set for turnaround – 69.2%-owned PTRO was loss-making in 2015-16. Given the recent turnaround in coal prices, we expect PTRO’s bottom-line to be back in the black in 2017E.
•  Valuation is attractive at core PER of 5.8x – INDY is trading at a core 2018E P/E of only 5.8x, a 53% discount to Indonesian peers.  Our TP of Rp5,375 translates to a core 2018E P/E of 9.0x, 38%/27% discounts to regional/Indonesian peers.

