Sumber Lengkap? Disini Valuation and recommendation Nothing fundamentally wrong. The free fall in Bumi’s share price has more to do with the repurchasing game, we believe, while core assets and operations remain well. The balance sheet also looks sound with a net cash position of US$33m as at 1H08. EPS downgrades to fully capture downside. That said, we have cut our FY08-10 EPS estimates by 12-14% for lower production volumes, higher royalty payments and higher interest expense as the company took up US$255m of fresh loans in 2Q08. We believe our forecasts are conservative enough, at 7-9% below consensus for FY08- 09. Higher risk premium assigned. Given rising non-fundamental risks, we believe a higher risk premium needs to be assigned to Bumi. Our beta assumption has been raised from 1.2 to 1.5, leading to a sizable increase in WACC from 14% to 17%. Following this and our forecast downgrade, our target price has been trimmed to Rp5,300 from Rp7,900. The current share price implies a hefty 25% WACC vs. the 12% average for the JCI, quite excessive in our view. Even in the worst case of accounting for all risks (i.e. assuming a 45% tax rate starting FY09), we price the shares at Rp4,220, implying a 20% discount to our DCF-based valuation. Assets valued at attractive discount, hostile takeover likely? Bumi’s current EV/reserves implies US$5.20/tonne, using the Oct 07 reserves statement of 1.4bn tonnes. If the company publishes its official reserve estimation as at 30 Jun 08, a further 442m tonnes could be added, implying US$3.9/tonne EV/reserves. This is very much below the average US$10/tonne it used to trade at or the price tag in private deals for similar brownfield coal assets in Kalimantan of around US$7-8/tonne. With established infrastructure and a lex specialist status, Bumi could attract hostile takeover, in our view. Coal assets are still very much sought after today and most would agree that coal sector fundamentals remain robust. Bumi’s balance sheet and cash flows are relatively sound too. Valuations have become increasingly appealing with inexpensive asset values and very high risk premiums attached to the current share price.
