UBS Bumi Resources - Key takeaways from UBS conference call

Key takeaways from UBS conference call

Acquisitions and balance sheet
Management stated that the recent acquisitions are not material, as they fall within Bapepam’s (Indonesian financial regulator) requirements; less than 10% of revenue and less than 20% of equity. Management said that the target companies have no ownership affiliation with Bumi Resources or Bakrie Brothers, but stopped short of denying any affiliation with the Bakrie family. Management expects debt to peak at US$1.3bn in 2008.

Operational outlook
Management is guiding for net earnings 8% above consensus and 35% above our estimate in 2008, which we attribute to a lower-than-expected effective corporate tax rate of 30%. Management highlights its expectation of a 10% increase in production and sales volumes in 2009 with a 15% reduction in cash costs. This should result in a 20% increase in EBITDA, by management’s estimates.

Reiterate Buy rating but expect volatility
We maintain our Buy rating on the stock, which has declined 91% since its peak in June 2008, but highlight the potential for non-fundamental share price volatility from the current restructuring. We believe the current risk and volatility levels will fall following the completion of the ownership restructuring.

Valuation: Rp1,600 12-month price target
Our 2009 earnings estimate is 15% below consensus. Our Rp1,600 12-month price target is based on a 2009E PE of 7.5x and a WACC of 15%.