1. Ticker Code: KRAS
Price: IDR 1,220
Target Price: IDR 1,540
Report Date: 1/6/2010
Recommendation: BUY
COMPANY RESEARCH REPORT UPDATE
Sector Classification
PT. KRAKATAU STEEL (PERSERO) TBK.
Flooding inundates about half of Queensland state of Australia, IDX Classification: Basic Industry & Chemicals
affecting an area larger than France and German combined. It swamps IDX Sub-Sector: Metal & Allied Products
22 towns and affect the life of over than 200,000 peoples. The state
has declared eight regions as a disaster area and believes there are Investibility
Market Cap: IDR 19,876tn / USD 2.196bn
more to come. The catastrophic disaster brings not only increasing
Free Float: 20.00%
refuge, but also sees the halt of economic activities, especially in
Avg Daily Trading to Free Float: 5.36%
mining.
Hard Coal Net Exporters 2009 Company Data
Date of Price 5-Jan-10
0 50 100 150 200 250 300 52-week Range Rp 950-1520
Shares Outstanding 3.155bn
Australia 262 Price Target IDR 1,540
Indonesia 230 Price Target end Jun 30 2011
Russian Federation 93
Major Shareholders Percentage
Columbia 69
Republic of Indonesia 78.43%
South Africa 67 Management & employees 1.96%
United States 33 Public 19.61%
Vietnam 25
Board of Comissioners
Kazakhstan 22
President Comissioner: Zacky Anwar
Canada 20 Comissioners: Ansari Bukhari
Czech Republic 4 Independent Commisioner Alexander Rusli
Others 11 Independent Commisioner Moch. Imron Zubaidy
Hard Coal (Mt) Board of Directors
President Director: Fazwar Bujang
Source : IEA Key World Energy Statistics 2010 Directors: Syahrir Syah Pohan
Directors: Dadang Danusiri
Queensland holds the largest export port in Australia and is a US$ 50 Directors: Irvan Kamal Hakim
mn mining industry with production capacity of 243 mn Tonnes p.a. Directors: Yerry
Queensland accounts for about 55% of the total Australia production Directors (Not affiliated): Sukandar
capacity (Source : Australia Mineral Statistics 2010). Australia, (based on
International Energy Association) exported 262 Mt of Hard Coal in 2009. Company Address
The country is also the largest net exporter of Hard Coal in the world.. Head Office
Jl. Industri No. 5
We believe the disaster will affect the price of steel . Why? Because of P.O. Box 14 Cilegon
2 reasons, the first is the tight correlation of steel industry with coal Banten 42435
supply as almost all coking coal is used by the steel industry to be
converted into coke in a coke oven and is used in the blast furnace for Jakarta Office
the production of pig iron for steel alloy. Coking coal is the key Gedung Krakatau Steel, 4th Floor
ingridients of manufacturing iron and steel. Jl. Jendaral Gatot Subroto Kav.54
Jakarta Selatan 12950

2. The second is the fact that Australia is the second largest producer and the number one exporter of coking
coal in the world. The flooding of Queensland state will surely decrease the production of coking coal , as
sequaciously half of the Queensland miners have to stall or even tie up their operation. We expect the
sudden diminishing of coking coal supply will affect steel prices as the steel producers anticipated the raising
future contract prices of coking coal supply combined with current supply and demand mismatch.
KRAS is an investment opportunity
PT. Krakatau Steel (Persero) Tbk is a state-owned enterprise and the largest steel company in Indonesia. Total
production capacity of the company currently reaches 2.75 million tonnes p.a. The Company plans for major
expansion and equipment revitalization in order to improve efficiency and production capacity, and aim to
reach 4.25 million tonnes p.a by 2014
Despite of the edgy Initial Public Offering (“IPO”) of PT. Krakatau Steel Tbk, the fact that the state owned
company is a leading and the largest steel company in Indonesia doesn’t change. We still believe the frenetic
process do not change the fundamental and intrinsic value of the company.
The Company was forecasted to close this year with 1.8 – 1.9 million tonnes of sales in 2010 and expected to
grow by 20% up to 2.2 million tonnes in 2011. The primary product of the Company is Hot Rolled Coil (HRC),
Cold Rolled Coil (CRC) and Wire Rod (WR), they account for 75% of revenue in 2009. The world prices of HRC
have increased by 15% from the beginning of 2010 to September 2010 whilst CRC and WR have increased
by 13% and 20% respectively.
WORLD CARBON STEEL PRICES (HRC, CRC, WR)
900
850
800
750
700
650
600
550
HRC CRC WR
Source : MEPS Steel Prices
The steel business is relatively a straight forward business, where price and volume are the most dominant
variable and basically driven by the world demand and supply, thus in the end, willdetermine the
performance of the players. . Coking coal is essential for production of steel, providing the necessary carbon
for steel alloy. The cost of coking coal and coking coal transports account for 20-25% of production cost for
blast furnace (BOF) steel production.

3. Steel Production Process
Source : World Coal Institute
The flood of Australia will strangle the supply of coking coal, thus further increase the variable price. The
company which have secured the supply of coking coal by long term contract or any means will benefit an
instant increase of sales margin, while adjusting the new prices and production cost for future sales.
KRAS Valuation and Projection
PT. Krakatau Steel Tbk (KRAS) is still relatively cheap compared to it peers, mainly because the market hype
over the so called “cheap IPO Price”. The hype made the price sky rocketed in the first few days of trading,
and drop after the demand dry up. KRAS is trading at Rp 1220 currently (5/1/2011), significantly lower than
its all time high of Rp. 1520 (achieved in its second day of trading), but significantly higher than its IPO Price
of Rp 850.
Financial Ratios and Valuation
Market Cap
PE (x) ** PBV (x) ** EV/EBITDA (x) ** ROE * ROA * current (US$ Bn)
PT. Krakatau Steel (Persero) Tbk 7.92 1.82 5.34 8.79% 3.51% 2091.03
POSCO (South Korea) 7.56 1.23 5.73 10.80% 8.24% 37661.4
Tata Steel Ltd. (India) 9.34 2.3 7.15 -7.95% -1.78% 14213.6
ArchelorMittal (Euronect Amsterdam) 12.01 0.96 12.72 0.20% 0.09% 60206.8
Shougang concord International Enterprises Co Ltd (Hongkong) 6.78 1.05 24.83 0.89% 0.32% 1220.33
Wuhan Iron & Steel 19.72 1.21 20.76 5.52% 2.07% 5082.15
Inner Mongol Baotou Steel 85.53 25.45 41.77 3.34% 0.91% 8923.02
Source : IRAI’s Compilation
* ROE & ROA is using 2009 data
** Calculated based on 4/1/2011 price and data
We see the politization and edgy IPO process provides an opportunity to buy KRAS at a discount prices. With
PE Ratio of 7.92x and PBV Ratio of 1.82x, KRAS is priced relatively lower from the global steel industry
player. The expectation of growing economy and infrastucture development, combined with the increasing
price of coking coal, may benefit the steel companies by having an increase in margin as as result of further
raising on steel price.

4. As a consequence, our recommendation for the KRAS is BUY and our target price is Rp. 1540 based on our
expected 10x PER in 2011.
Profit & Loss Projection
In Rp Billion 2007 2008 2009 2010 2011
Net Revenues 14,836.02 20,631.43 16,913.54 16,300.00 21,190.00
Cost of Revenues 13,063.42 17,915.37 15,728.15 12,868.78 16,729.42
Gross Profit 1,772.60 2,716.06 1,185.39 3,431.22 4,460.58
Total Operating Expenses 979.87 1,355.68 1,159.45 1,229.24 1,598.01
Income From Operations 792.73 1,360.39 25.94 2,201.98 2,862.57
Other incomes (changes), net (295.370) (619.565) 442.719 - -
Income before tax expense (benefit) 497.36 740.82 468.66 2,201.98 2,862.57
Tax expense (benefit), net (180.84) (277.21) 27.55 (660.59) (858.77)
Income before minority interest in net income of subsidiaries 316.520 463.609 496.204 1,541.384 2,003.799
Minority Interest in net income of subsidiaries (3.08) (4.04) (1.53) (1.38) -
Net income 313.441 459.571 494.672 1,540.01 2,003.80
Balance Sheet
Balance Sheet Dec 2007 Dec 2008 Dec 2009 June 2009 June 2010
Asset
Current Asset
Cash and cash equivalents 636.60 1,100.49 1,759.96 1,100.16 1,518.89
Short-term investments 44.94 5.34 142.55 6.07 1.95
Restricted time deposits - - - - 260.00
Trade receivables 2,338.90 1,994.46 1,642.21 1,926.00 1,725.56
Other current asset 4,469.73 8,522.27 5,143.95 4,627.96 5,510.37
Total Current assets 7,427.97 11,557.70 8,631.16 7,584.40 8,942.43
Non-Current assets
Estimated claims for tax refund 155.97 262.91 186.79 88.52 128.30
Investments in shares of stock, net 34.03 34.15 136.75 44.66 142.10
Defered tax assets, net 23.31 91.42 202.47 462.69 18.58
Fixed assets 3,183.85 3,162.27 3,378.93 3,129.35 3,943.54
Other assets 291.90 265.97 259.70 228.58 168.75
Total non current assets 3,689.05 3,816.73 4,164.64 3,953.80 4,401.27
Total Assets 11,117.024 15,374.427 12,795.803 11,538.199 13,343.701
Liabilities
Current Liabilities
Short-term bank loans 2,789.10 6,701.51 4,209.25 4,345.62 3,439.44
Trade Payables 834.94 833.99 738.82 654.99 1,157.33
Current portion of long-term loans 261.33 240.44 222.39 235.53 202.25
Current portion of long-term liabilities 7.62 11.96 2.89 3.82 3.33
Factoring payables - 108.29 - - -
Other current liabilities 589.07 729.80 1,231.19 997.71 1,122.29
Total Current Liabilities 4,451.87 8,592.32 6,130.35 6,069.55 5,685.17
Non Current Liabilities
Deferred tax liabilities, net 209.32 1.98 5.77 2.33 87.27
Long-term loans, net of current portion 868.30 711.32 568.64 595.42 584.55
Long-term liabilities, net of current portion 29.83 17.54 20.62 26.20 38.01
Estimated liabilities for employee benefits 468.73 574.16 223.64 617.41 241.37
Total Non Current Liabilities 1,576.17 1,305.00 818.66 1,241.36 951.20
Total Liabilities 6,028.041 9,897.323 6,949.013 7,310.907 6,636.363
Minority Interest in Net Assets of Subsidiaries 14.65 37.34 40.95 35.67 71.37
Shareholder's Equity
Share capital 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
Other paid in capital 1,303.47 1,303.47 1,303.47 1,303.47 1,303.47
Difference arising from transactions resulting in changes in the equity of subsidiaries 0.38 - 18.47 - 18.47
Retained earnings 1,770.49 2,136.30 2,483.91 888.15 3,314.04
Total Shareholder's Equity 5,074.33 5,439.76 5,805.84 4,191.62 6,635.97
Total Liabilities and Shareholder's Equity 11,102.373 15,337.084 12,754.851 11,502.526 13,272.334
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