China intention on keeping coal price at reasonable and stable level are strong
As of our last sector upgrade to Overweight in August, the coal price recovery has unfolded as expected.
China's coal supply and demand dynamics remain pivotal, with recent developments reinforcing our stance. During China Coal Energy's (601898.SS) earnings briefing, an official noted that China's state asset regulator has held meetings with industry participants to maintain coal prices at a reasonable and stable level.

However there is still risk from the China demand side, as the country still fight from Involution which could lead to lower industrial demand as the country try to tackle oversupply issue on most industries. Which potentially lead to lower coal burn and energy demand if they don’t manage it properly, but as long as coal production discipline still in place and Chinese coal producers willing to cut production further, we think the downside still can be partially offset.
China Coal Production and Inventory:
• China's coal production curbs will likely persist, with a rebound in output appearing unlikely.
• September coal production declined 1.8% YoY to 411.5Mt, with 9M25 production up 2% YoY to 3.6Bn tons.
• China's coal inventory at port has normalized to 20Mt level, and the near-term outlook suggests a relatively balanced supply and demand, particularly heading into the winter season.

Global Supply Dynamics; Global coal supply remains ample, albeit with localized disruptions. Key developments:
• Indonesia's supply is stable, despite higher-than-normal rainfall limiting production growth.
• Australia's logistics are challenged by Newcastle port congestion and ship loader outages, while a higher royalty regime discourages production growth.
• Russia's railway bottlenecks and financial distress among coal companies constrain export capacity.
• Colombian exports remain subdued due to unattractive prices and production cuts.

We maintain a cautiously optimistic outlook on coal prices, with our 2026F average Newcastle coal price target at USD 120/t and coking coal price at USD 190/t. Heading into 2026, we anticipate lower global coal supply as an opportunity, driven by:
• Indonesia's planned production quota reduction to below 700Mt.
• Potentially higher rainfall in 2026 due to La-Nina event, which could limit Indonesia and Australia's coal production, and Higher LNG prices providing support for coal until 1Q26F.
• The appearance of La-Nina event is historically positive for coal price to continue its uptrend and limit the downside risk of coal price falling substantially.
• We expect coking coal prices to stabilize, having already corrected significantly. The direction will hinge on China's industrial demand.

Tweaking our 2025-2026F
We revised down our avg. newcastle coal by 4.3% to USD 110/t for 2025F, and maintain our 2026F coal price target at USD 120/t. Moreover we also revised down our avg. coking coal price assumption by 5.0%/17.4% to USD 190/190 per ton for 2025F/2026F.
Thus we tweaked our revenue and earnings forecast for all coal companies under our coverage:
• ADRO: Revenue and net profit tweaked by +0.1/-8.0% and +2.1/-16.0% for 2025F/2026F respectively. Despite we lower our ASP target impact on overall revenue could be minimized by higher sales volume.
• ITMG: Revenue and net profit tweaked by -12.6/0.0% and -18.5/+12.0% for 2025F/2026F respectively. We expect 2025F earnings down owing to lower ASP and sales volume despite lower cash cost. However in 2026F we expect higher earnings on the back of lower cash cost.
• PTBA: Revenue and net profit revised down by -7.3/-3.1% and +20.1/+75.2% for 2025F/2026F respectively. Despite lower ASP assumption we think PTBA cash cost improvement could support company earnings.

Maintain OVERWEIGHT
We maintain our OVERWEIGHT rating for coal sector, as we think coal price correction already behind us. Consequently, our stock preference now ranks as follows: ADRO > ITMG > PTBA (was ITMG>ADRO>PTBA. We have also adjusted our target prices (TP) based on our updated forecasts. We upgrade ADRO to BUY from HOLD with TP of IDR 2,740/sh (Was IDR 1,980/sh). We maintain our BUY rating for ITMG with lower TP IDR 29,370/sh (was IDR 30,100/sh). And we upgrade PTBA to BUY with TP IDR 2,980/sh (was IDR 2,220/sh)

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