Credit Suisse - Bumi Resources (BUMI.JK, Rp770, N, TP Rp945) - Too big to ignore

Bumi Resources (BUMI.JK, Rp770, N, TP Rp945) - Too big to ignore

· We are reinstating coverage of Bumi with a target price of Rp945 (30% discount to DCF-derived equity value) and NEUTRAL rating.
· While we believe Bumi is intrinsically undervalued, stock rerating may be possible only if management allays investors' concerns on disclosure, meets/beats operational and financial targets and peers' performance, and returning capital to shareholders.
· Even then it is difficult to ignore Bumi's 70% ownership of KPC and Arutmin, highly scaleable and efficient mines with 2 bn tonne (t) reserves and plans to expand production capability to 100 mn tpa.
· Our volume assumptions are slightly below guidance. And while we raise unit cost above previous estimates and guidance, on sector-wide evidence of stickiness of cost base, we expect total unit cost to drop from the peak US$51/t observed in 3Q08 to US$40/t in FY09E.
· Assuming changes in operating assumptions, we estimate Bumi's cash breakeven to be at about US$55-60/t equivalent regional coal price in 2010. Barring the acquisition of Herald Resource in 2008, we have not included any non-coal cash flows in our forecast.