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Friday, January 20, 2012

Harum Energy Tbk - HRUM is “Smell Good”

by ‎Etrading

Impressive Volume Growth

HRUM is the 6th largest bituminous coal producer in Indonesia with volume production in 2010 totalling of 7.4 mn tonnes. HRUM recorded an impressive volume growth with 38% CAGR 2007‐2010 and we expect HRUM will record 29% CAGR 2011‐2014 backed by its solid infrastructure. Vertically Integrated operations HRUM has vertical integration of downstream infrastructure, its enable the company to increase its efficiency and Supply reliability. HRUM has dedicated barging and transhipment facilities through its subsidiary namely Layar Lintas Jaya (LLJ).

Healthy Balance Sheet

After IPO, HRUM has strong cash position and clean debt with negative net gearing ratio that enable the company to distribute high Dividend Payout Ratio (DPR). Moreover, we believe the strong cash position will give the company much room to expand its business by acquiring more mine concessions.

Coal Market View

We believe in 2012 will be a bumpy year for coal market price due to world economic slowdown. However, the expectation of China and India coal consumption is still very high. Moreover, the government step to use more coal to fire up the nation’s power plant will gradually improve domestic coal consumption. Therefore, even there would be a decline on demand in the short‐term, we still foresee a significant gain on demand in long‐term.

Valuation

Our Valuation based on DCF calculation with 13% of WACC and 0% of terminal growth rate, the company fair value is IDR 12,680. However, we set our Target Price at IDR 10,000 discount 21% from the fair value due to anticipate the bumpy coal price this year that will give negative sentiment to this sector. Our Target Price reflects PE13F of 10x and 37% potential upside.

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