Our target price for Alamtri Resources Indonesia is based on a sum-of-the-parts (SOTP) valuation that utilizes discounted cash flow (DCF) methodology across aluminium, metallurgical coal, and renewables while assigning a target multiples for its mining contracting business. Our SOTP indicates a fair value for ADRO of Rp2,500/share (equivalent to 7.7x/4.3x 2026E PER & EV/EBITDA), with its ADMR making the largest contribution (50% of SOTP), followed by renewables business (22% of SOTP), and mining contracting (16%). Our DCF assumptions utilize a WACC of 7.1%-11.9% (Rf of 4.5%, beta of 1.1-1.3, net kd of 3.9% and ke of 13.9%-16.9), and long-term metallurgical coal/ aluminium prices of US$200/t and US$3,000/t respectively.
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Downside risks that could mean the Alamtri Resources stock fails to achieve our target price include: : 1) fluctuations in prices of metallurgical coal and aluminium prices amid supply and demand dynamics; 2) exploration risks on its metallurgical quality and reserves; 3) rising costs of production or capex; 4) logistics headwinds amid weather challenges; 5) regulatory and tax risks; 6) operational and environmental risks; and 7) poor execution of its renewables venture that results in cost overrun and delays. Conversely, if any of these risk factors proves to be better than expected, the stock could outperform our TP.
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