CIMB Petrosea

Petrosea's business line include EPC (oil and gas), Services, and Mining.
Coal contract mining is the biggest revenue contributor, accommodating around 70% from total revenue. Gunung Bayan Resources is Petrosea's biggest customer for coal contract mining. The company has signed a contract with Gunung Bayan for US$300m for five years early this year, for coal overburden removal of 36mn bcm per annum, which we estimated to contributes around 50% from its total revenue.
Petrosea also have a small coal concession East Kalimantan, with total reserve of 17mn tonne. The coal concession is a 50/50 joint venture between Petrosea and PT Harum Dana.

At this juncture, as concentration for Indika is to acquire coal mine assets, we view it is unlikely for the company to acquire Petrosea as its business mainly concentrated on coal contract mining. Further, it could raise an issue with Gunung Bayan Resources, Petrosea's biggest customer.

Indika denied to comment in this issue, however, they stated that they are open for any acquisition related with its coal assets that would enhance its value. Indika currently has net cash of Rp406bn as of 9M08.
Petrosea's market cap is currently Rp546bn.



Noteworthy:
1) PTRO has a shareholder, Clough of Australia, who's been said keen to dispose of PTRO for quite sometime. Interestingly, Clough added about 3% stake in PTRO to 80% presently in early 2008, based on Bloomberg;
2) A good fit for PTRO is heavy equipment distributor like HEXA given UNTR's business model of owning Pama has proven to be successful

Instead of INDY, BYAN might be better fit sine it would not run into potential conflict of interest on PTRO part
Put all this aside, buying contractor like PTRO is tricky business given main asset is the human resource
The M&A angle makes for good trades but beware of the liquidity trap