Monday, June 13, 2011

PT. Tambang Batubara Bukit Asam Tbk

by Deutsche Bank Securities

PTBA's AGM today approved the resignation of CFO, Dono Boestami. Mr. Boestami joined PTBA in Dec'2006 (he held senior directors positions at Barclays and Citirgroup prior to that). His term was supposed to formally end in dec'11, with an option to extend another 5 years. In our view, his departure was likely due to the relative company inaction; delays in the various projects meant a delay in fund-raising requirements for the company, which was supposed to be among his primary mandate as a CFO.

In our view, near term, the stock's performance may be lackluster relative to the sector, due to immediate sentiment following the CFO's departure, near-term earnings risk amidst to the potential delay in the PTKA (PT Kereta Api) locomotives delivery from Jun to September this year, and limited nearterm visibility on the Rajawali project's milestones until later this year.

However, we continue to believe its longer term investment thesis remain in-tact; therefore we maintain our Buy recommendation. The arrival of the locomotives, when they do, would immediately increase the existing rail's transport capacity by over 20%. This would also help capture the positive outlook on coal demand & prices. Furthermore, on the new rail project, partner Rajawali continues to be committed and focused on this investment, playing the key role in driving the project's progress and tackling the issues, including in liaising and negotiating with the regulators, China Railway (contractor), the Chinese banks, as well as handholding PTBA's board throughout the process.

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