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Thursday, October 6, 2011

Medco Energi: Deep value proposition, with catalyst

by Mandiri Securities

. Upgraded from Neutral to Buy with TP of Rp3,050.

Domestic oil companies often made their fortunes by acquiring assets from the global players, when their work contracts expire or when some fundamental shifts occur. A number of acquisition targets could be coming up soon. Medco appears most ready with funding compared with other local competitors, having recently sold partial stake in the Senoro and obtained standby loan facility.

The stock trades at a 52% discount to its fair value, with low P/E ratio of 6.2x and 4.6x FY13-14F. Its net profit should grow strongly in 2013 and 2014, when its three big projects: Senoro LNG, Rimau enhanced oil recovery (EOR), and Aceh block A start to bear fruits. Our forecasts are based on US$95/bbl oil (brent). Upgraded from Neutral to Buy with TP of Rp3,050, 15% discount to our sum-of-parts value

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