UBS BUMI

Recent actions underline legacy risk
Bumi Resources’ (Bumi) most recent corporate actions underline the legacy risk,
which has been associated with the Bakrie group since the US$1.2bn debt default
in 1998, and was heightened following the 2006 Lapindo mudflow disaster. We
advise caution considering the absence of an EGM to ensure shareholder approval
for the most recent acquisitions, but highlight the possibility of a near-term EGM,
given ongoing pressure from state financial regulator, Bapepam.
Street’s valuation analyses inconsistent and premature
We question recent broker valuations, which apply new risk premiums to Bumi, as
we argue such premiums should have been applied long ago, in line with the longtime
legacy risk. We believe incorporating more conservative assumptions, such as
higher capex and cost of debt, is more prudent, instead of applying arbitrary risk
premiums that try to capture negative market sentiment.
Acquisitions value accretive with manageable gearing
We believe Bumi’s three recent acquisitions are value accretive, which is contrary
to recent broker reports. Our bear-case valuation scenarios of the acquisitions
would add 21% to Bumi’s share price, while we do not expect net gearing levels to
exceed our 2008 peak estimate of 1.1x.
Valuation: maintain price target of Rp1,600
Our 2009 earnings estimates are 33% below consensus. Our Rp1,600 price target is
based on a 2009E PE of 7.5x and a WACC of 15%.