Harum Energy summary results attached

Harum Energy:  Weak 4Q12 Results –  bottom line 85% of consensus  (Rp4,800/share, Under review) -  FY12 summary results attached

Weak 4Q12 Results – both from MSJ and SB. HRUM reported weak 4Q12 results with bottom line at only US$6mn (-85%YoY, -82%QoQ) resulting weak FY12 bottom line at US$132mn (-20%YoY) or about 85% of consensus. Main factors behind these weak results are:

• Weak operational performance from MSJ as 4Q12 coal production only 1.9Mt (-14%YoY, -17%QoQ)and lower 4Q12 ASP at US$74.4/t (-22%YoY,  -1%QoQ), led weak operating profit of US$22.8mn (-65%YoY, -58%QoQ)
• Cash cost remain high at $55.7/ton (+12%YoY, +7%QoQ) due to higher barging, transshipment and diesel cost
• Net loss from SB, as income from associate in 4Q12 at net loss of US$1.7mn from previously at US$0.6mn and US$1.6mn in 4Q11 due to challenging cost structure

Non recurring charges: investment write off US$6mn from Cockatoo Coal Ltd (COK) in Australia, and US$6.7mn charge from a pit closure in Separi Block due to the mineable reserves being exhausted during the period, led all outstanding exploration and deferred stripping cost was expensed.
Margin squeezed –  hit new record low. Operating margin in 4Q12 continued to weaken hit new record low at 11% half from 3Q12 at 22% and 26% in 4Q11. FY12 operating margin  Aside from the fall in ASP, the company also made more outside coal purchases than they did last year to support sales volume and keep relationship with customers. In 2012, they purchased 2.8 mt, while in 2011, they only purchased 0.8 m.

50.5% KUP acquisition completed. HRUM has completed its 50.5% stake acquisition in PT Karya Usaha Pertiwi (KUP) in January 2013. It has 2,700ha concession which adjacent to MS and SB’s mines. Its exploration and production will commence in 2Q13 but subject to supporting market conditions. KUP size is insignificant or similar to TBH mine which may expect higher coal price to be economically mined.

2013 Outlook: remain challenging & lack of growth.  In light from current market condition, from HRUM’s perspective, despite some cut backs from US, Australia and Indonesia, global coal supply remain high particularly from lower grade coal, which may take longer to stabilize. Therefore, Company has sold substantially all its FY13 volume in 1H13 which has been priced similar to 4Q12’s at around US$74-75/t. FY13 combined production is expected.

With NEWC spot pricing continue to weaken below US$90/t, we may see limited rerating across the industry in near term including HRUM as mine-life reserves potentially being squeezed due to significant lower SR and valuation likely being capped unless global coal prices recover and rally.