Asia’s most popular stocks have plummeted in recent months, but PT Adaro Minerals Indonesia could still rise with a recent acquisition that will boost sales in the electric vehicle supply chain.
Shares of the Indonesian coal miner are up 1,650% this year, more than six times the performance of the second-best stock in the MSCI Asia Pacific Index.
Shares are down 40% from their April peak, fearing a Fed rate hike and a possible recession could hurt the steel industry. However, the expansion of aluminum production as part of an increase in sales of electric vehicles could open up great prospects. According to analysts’ forecasts, 53% growth can be expected over the next year.
Shares of Adaro Minerals rose 4% to Rs 1,820 in early trading on Thursday, surpassing a 4.1% fall the previous day.
Demand for the company’s existing coking coal supply will also increase due to the growing needs of the nickel industry, which is highly dependent on fuel.
The company has a 491% first-half net profit growth in August due to higher average prices and a 9% increase in sales volume to 1.17 million tons.
In February, Adaro acquired PT Adaro Indo Aluminum, which is building an aluminum plant in North Kalimantan province. The firm targets production by the first quarter of 2025 to tackle electric vehicles. By then, revenue should account for more than half of its income, which currently comes exclusively from coal. Aluminum is the main body material for many electric vehicles, which are lighter than steel vehicles.
At the moment, shares are still very cheap, given the prospects and value of aluminum companies in the future. The brokerage has a 12-month price target for Adaro Minerals of Rs 2,650, more than 50% more than at the last close.
Adaro’s current market capitalization to book value ratio of nearly 12 hovers near summer lows, though it is about six times higher than domestic peers, including PT Bukit Asam and PT Indo Tambangraya Megah, which produce thermal coal. China’s Shanxi Coking Coal Energy Group and Australia‘s Whitehaven Coal Ltd., which produce coking coal, have ratios of around 2.
At the same time, the company faces some problems, such as prices for everything from iron ore to copper have fallen in recent months due to concerns about China’s economic growth, which is undermining demand. A stronger dollar is also putting pressure on broader markets.
The challenges for Adaro Minerals are lower commodity prices for both coking coal and aluminum, and lower demand due to slower global GDP expectations. The brokerage has a buy-equivalent rating on the stock, citing that its valuation will get better once the aluminum business launches.
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