--- On Tue, 1/20/09, patricia.sumamp...@cimb.com <patricia.sumamp...@cimb.com> wrote:
From: patricia.sumamp...@cimb.com <patricia.sumamp...@cimb.com>
Subject: BUMI (TP Rp500) - Macquarie: Can't touch this
To:
Date: Tuesday, January 20, 2009, 9:07 AM
Subject: f BUMI (TP Rp500) - Macquarie: Can't touch this
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| Stock price as of 16 Jan 09
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Rp
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540.00
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| 12-month target
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Rp
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500.00
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| Upside/downside
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%
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-7.4
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| Valuation
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Rp
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2,450.00
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| - DCF (WACC 13.0%)
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| GICS sector
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energy
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| Market cap
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Rp bn
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10,478
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| 30-day avg turnover
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Rp m
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225,811.0
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| Market cap
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US$m
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942
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| Number shares on issue
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m
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19,404 |
Investment fundamentals
| Year end 31 Dec
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2007A
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2008E
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2009E
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2010E
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| Total revenue
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m
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2,265.5
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3,574.4
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3,684.8
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3,529.6
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| EBIT
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m
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388.7
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1,154.8
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1,203.3
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683.6
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| EBIT Growth
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%
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25.7
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197.1
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4.2
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-43.2
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| Reported profit
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m
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789.0
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635.7
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444.9
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243.5
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| Adjusted profit
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m
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281.5
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635.7
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444.9
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243.5
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| EPS rep
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¢
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4.1
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3.3
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2.3
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1.3
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| EPS rep growth
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%
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285.7
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-19.4
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-30.0
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-45.3
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| EPS adj
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¢
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1.5
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3.3
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2.3
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1.3
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| EPS adj growth
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%
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27.7
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125.8
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-30.0
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-45.3
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| PE rep
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x
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1.2
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1.5
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2.1
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3.9
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| PE adj
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x
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3.3
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1.5
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2.1
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3.9
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| Total DPS
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¢
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0.8
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1.0
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0.7
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0.4
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| Total div yield
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%
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17.4
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20.2
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14.2
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7.8
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| ROA
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%
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14.6
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31.3
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26.7
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15.1
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| ROE
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%
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38.0
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49.9
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28.1
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13.4
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| EV/EBITDA
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x
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3.4
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1.3
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1.2
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2.0
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| Net debt/equity
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%
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-7.1
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34.8
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14.4
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3.7
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| Price/book
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x
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0.8
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0.7
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0.5
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0.5 |
BUMI IJ rel Jakarta Composite Index performance, & rec history
Source: Datastream, Macquarie Research, January 2009 (all figures in USD unless noted)
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| Can't touch this
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| Event
§ We reiterate our Underperform recommendation on Bumi and our target price of Rp500. However, we cut our fair value from Rp3,630 down to Rp2,450 on the back of our global coal price forecast cuts.
Impact
§ Forecast now closer to the cost curve and the end of the downgrade cycle (hopefully). Our global commodities team have significantly cut their thermal coal price forecast for JFY 2009–11 from US$100–105 to US$70–75, on the back of a drastic global growth slowdown.
§ Only 25–30% of production priced in 2009, leading to significant earnings risk given potential for coal price volatility.
§ Recent acquisitions appear expensive … The DEWA deal was concluded at an 8x premium to the prevailing market price. Further, FBS was purchased at US$20 EV/Reserves (vs current regional multiples of US$4 EV/Reserves) and the PEB was purchased at US$120m (which is a non-producing mine with low CV coal of 4,800–5,200).
§ … and significant questions are raised over transparency. The FBS and PEB deals, in particular, appear to lack transparency as the FBS's office is registered in Bakrie's building, and Bumi's President Director has only recently resigned as a Director of FBS. Further, according to the Indonesian Coal Book, PEB is 90% owned by Bakrie Capital Indonesia.
§ Risk of future acquisitions to impact free cashflow generation? We highlight the risk of expensive and non-transparent transactions continuing, which could lead to a deterioration of Bumi's future free cashflow (FCF).
§ DCF valuation does not account for leakages of FCF. Previously, our price target was predominantly based on the NPV of future cashflows from Bumi's world class coal mining assets, KPC and Arutmin. However, we now see the risk of leakages of FCF via acquisitions. We arrive at our target price by applying an 80% discount to an NPV valuation. We acknowledge that this discount is somewhat arbitrary, but this it is appropriate given uncertainty.
Earnings revision
§ We downgrade our earnings by 33% and 65% for 2009/10.
Price catalyst
§ 12-month price target: Rp500.00 based on a DCF methodology.
§ Catalyst: Change in corporate governance; locking in prices for 2009 production.
Action and recommendation
§ We rate Bumi Underperform with a Rp500 target price due to corporate governance concerns.
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