Bareksa.com - FY13 earnings largely in line with expectation. In 4Q13, ADRO earnings came in at US$48m (-31% QoQ, +27% YoY) bringing FY13 earnings at US$231m (-40% YoY) and forming 99% of ours and 96% of consensus esti-mates. The company booked revenue of US$3,285m for FY13, down by 12% YoY but in line with our and consensus expectation. Lower ASP (-19% YoY) offset the strong operational performance in 2013 (a volume growth of 11% YoY).

Beating cash cost guidance for 2013, deferred strip cost charged in 4Q. The company beat its FY13 coal cash cost (ex. royalty) target of US$35 to US$38/t with the actual cash cost of US$34.9/t, down 11% due to cost re-duction initiatives and lower than expected fuel prices. The average SR declined to 5.64x (–20% YoY). The actual average stripping ratio in 2013 was not significantly different from the planned stripping ratio. As per our prediction, the company has charged off the stripping costs during 2013 of US$34mn as production cost in 4Q13.

Stronger cash flow in 2013, 2014-15F numbers unchanged. The company booked a strong operating cash flow at US$722m (+67% YoY) and a higher free cash flow on the back of low capex in 2013 (i.e. US$165m vs. US$485m in 2012). ADRO is guiding for production volume of 54-56 mt, or up by 3% to 7% YoY for 2014. In the past 5 weeks, the Street has up-graded 2014-15F earnings by 1.2% and 6.1%. Our 2014-15F earnings has narrowed to 104% and 106% of consensus (vs. 105% and 113% previously).

Valuation. We reiterate Buy on ADRO with TP Rp1,290, implying 13.4x 2014F P/E. ADRO remains our Top pick for coal sector due to: 1) Proven operational performance suggesting better earnings reliability 2) Defen-sive nature, being a low cost producer with a volume growth of 6.8% CAGR 2012-2015F 3) Compelling valuation at 0.8x 2014F P/BV with decent EPS growth of 16%. ADRO trades at 10.2x 2014F P/E, and at 4.2x 2014F EV/EBITDA, the cheapest in our coal sector (i.e. 5.6x E/V EBITDA).

*Franky Kumendong is PT Buana Capital's equity analyst. This article is part of the Equity Research of PT Buana Capital