results likely below our expectations
Bumi is expected to release its fully audited FY08 results on 31 March. We expect EBITDA to grow 210% to US$1.47bn and net profit 136% to US$700mn. However, we sense BUMI’s operating income will come in below our and market’s expectations (US$1.3bn) due to sales-volume slippage, as well as rising demurrage and commission fees. This is likely to be offset by a lower tax rate.
Operating performance could be below our expectations
The main culprits we see are slippage in sales volume and higher costs due to rising demurrage and commission fees, which are likely to offset falling diesel prices. Some 1-2 shipments deferrals and a breakdown in ship loaders were reported in 4Q. In addition, we could see a higher demurrage fee due to heavy rainfall. We see potential volume slippage up to 4mn t and higher sales/GA expense by roughly US$3/t.
FY08 results likely below our expectations.
Price objective basis & risk Bumi Resources (PBMRF)
We have assigned a PO of Rp550 for BUMI based on DCF. To derive our NPV, we use WACC of 30%, debt to equity ratio of 20:80, ERP of 13.0%, RFR of 15.5%, and cost of debt of 10% to derive a cost of equity of 35%. We assume a coal index of US$130/t in 2008, US$80/t in 2009, 2010, and 2011, and US$74/t LT price.
Risks to our PO: 1) Regulatory changes in Indonesia, including expiration of mining licenses. 2) Shareholder corporate governance uncertainties. 3)Disruptions to operations and/or projects under development. 4) Thermal coal and oil price volatility. 5) Global coal demand slowdown. 6) Rp/US$ exchange volatility. Upside risks: 1) potential change in shareholders 2) settlement of shareholder Repo problem and 3) recovery in coal price.
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