• Revenue met our expectations while PATMI missed due to higher than expected production cash cost and operating expenses.
• Total volume exceeded FY18 production target by 13%. The production target for FY19e is 25mn tonnes (+10.6% YoY).
• FY18 cash cost jumped by 18% YoY but is expected to fall in FY19e.
• Coal price headwinds to remain due to extended coal import restriction from China.
• We lower FY19e EPS to 2.2 US cents (previously 2.9 US cents) due to a weaker projected coal ASP. Based on unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we reiterate our BUY recommendation with a lower target price of S$0.30 for FY19.

The Positives

+ Total volume exceeded FY18 production target. Full-year production from coal mining totalled 22.6mn tonnes, exceeding by 13% of FY18 target.

The Negatives     

– Price correction protracted in 4Q18. HBA (Indonesia Coal Price Reference) grew mildly by 3.0% YoY to US$97.1/tonne in 4Q18 but fell by 7.1% QoQ. ICI 4 averaged at US$30.2/tonne (down 21.3% QoQ). Meanwhile, the spread between Newcastle Coal (NeWC) and ICI 4 widened during the period. Averagely, ICI 4 is trading at a 50% discount to NeWC, but the discount increased to 70% in 4Q18. 

– Full-year cash cost jumped. In FY18, cash cost surged by 18.6% YoY to US$27.4/tonne. The increase in the strip ratio of BIB mine (FY18:4.8 vs FY17:4.2) accounted for US$1.5/tonne. The increase in cost was impacted by fuel price, the distance between mining field and overburden dumping site, coal hauling, road repair and maintenance, and port/jetty cost lifted the cost by another US$0.7/tonne, US$0.65/tonne, US$0.50/tonne, US$0.8/tonne and US$0.50/tonne respectively.