PTBA reported a strong 2Q21’s net profit of IDR1.3T (+231.5% yoy, +155.4% qoq), reaching 54% of our FY21 estimation. The result was driven by stronger coal sales volume and a higher portion of coal export sales, maximizing the benefit of higher global coal prices. We upgrade our Underperform rating to Outperform with a TP of IDR2,350.

Improving production volume. The company showed a turnaround with 2Q21 coal production volume and sales volume of 8.8Mt or increased by 96% qoq and 7.0Mt or increased by 19% qoq, respectively, thanks to the favorable weather on the mining site to cover the low production performance in 1Q21. Thus, the 1H21 coal production met 52% of our projection this year.

Coal export sales portion increased. The percentage of coal export volume in 1H21 also increased to 37% from 31% in 1Q21, which became a major factor to boost the 2Q21 coal ASP to IDR886k/t (+32% qoq). We expect the export volume to reach above 40% of the total sales volume by the end of the year. Combined with robust sales volume, the company’s 2Q21 revenues shot up to IDR6.3T or jumped by 57.6% qoq, with an improved gross margin to 40.2% (vs. 1Q21 of 25.5%).

Acceptable higher cash costs. The company booked an increase in 1H21’s cash costs by 2% yoy and 5.2% qoq to IDR588k/t as the fuel price increased. We expect more increase as the 1H21’s (current) strip ratio at 4.4x was still below the management and our outlook at 5.1x and 4.9x, exposing the potential increase in mining services cost.

3Q21: Potential higher ASP. As we expect a maintained or even higher export volume portion, followed by a higher benchmark of Newcastle coal prices by around 40% qoq for 3Q21, we estimate 3Q21 coal ASP to increase at the very least by 13% qoq.

Upgrade to Outperform. We upgrade our recommendation from Underperform to Outperform with a higher TP of IDR2,350 as 2Q21’s operational results succeeded to cover the previous low quarter results and improve the coal export sales portion.