analysis by : CLSA Indonesia
Nick Cashmore re-iterates his BUY call on BUMI for an exposure to thermal coal super cycle. Cheapest coal play + deleveraging.
Post the 25% Vallar purchase, a potential step-up agreement could see Vallar lifting that stake to 51%. More currently, the 7% Newmont divestment could go to BRMS again as SOEs have indicated no interest.
BUMI is an aggressive deleveraging story. Vallar’s access to financing + BUMI’s penchant for M&A could be a powerful combination. The group has also indicated its desire to repay the first tranche of expensive US$600mn in CIC debt this August.
The stock is a conviction BUY.
Key points from report:
- Asia’s thermal coal market has tightened overnight. Japan is the largest importer of thermal coal; Indonesia is the largest exporter
- BUMI is the most sensitive to higher spot prices. 10% coal price increase will lift earnings by 30%
- Vallar now owns 25% of BUMI, and is in talks to raise it to 51%
- Aggressive deleveraging, redeemed US$300m in convertible bonds and is thinking of redeeming first tranche of CIC debt (US$600m)
- Stock is cheap, trading at 1 stdev below 5-yr average
- Valuation: if we strip out BUMI’s US$1.8bn stake in BRMS, the group’s residual market cap implies 10x 11consensus PER and 8x 11 CLSA PER. Big discount to peer valuation at 14x 11PER. Governance discount is overdone.
- TP 4,000 gives 30% upside. BUY