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Sunday, April 17, 2011

Bumi Resources Tbk

by Samuel Securities

Positive outlook, ongoing de-leverage Vallar plans to raise ownership in BUMI. Vallar PLC is offering BUMI’s shareholder a share swap mechanism on its plan to increase its stake to 50% in BUMI by May 10. The ratio for share swap is 57.7 : 1 of which every 57.7 BUMI shares will be offered 1 share of Vallar, implying conversion price of Rp3,240/share.

Debt deleverage on process. Debt deleverage is still on track. BUMI plans to reduce total US$975mn loan by end of 2011, consists of US$600 mn CIC loan and US$375 convertible bond. We estimate interest saving of US$228mn for 2 years, pave off  US$30mn penalty if the debt is repaid in cash.
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CIC have interest to be long term partner. BUMI mentioned that CIC might have interest to be a long-term partner. We view there are 3 potential scenarios: 1) cash  settlement, 2) debt to equity swap in BRMS or Vallar and 3) combination of 1 and 2. Good FY10 results. BUMI reported FY10 net earnings of US$311 mn (+63.4% YoY) inline our expectation but around 18.7% higher than consensus. Revenue came in at US$4,369 mn (+19.2% YoY), beat consensus and our forecast.

Higher coal production and ASP in 2011. Management is targeting 10% growth in coal production to 66 mn tons in 2011. Meanwhile, guidance for ASP is US$77/ton for 2011, 8.5% higher compared to 2010. The guidance for coal production is in line with our estimation, however, we expect higher ASP of US$82.5/ton.

Reiterate BUY, price target Rp3,950/shr. BUMI has gained 7.9% YTD and outperformed JCI. Stock catalyst will come from ongoing loan deleveraging. Moreover, Vallar’s plan to increase ownership in BUMI up to 50% will become positive catalyst to the share price movement. We reiterate our BUY call with price target Rp3,950/share, implies 14.9x PER’12F. Maintain BUY

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