While BUMI’s share price surged 238% from Jan-low (outperforming the JCI by 218%), Daisy Suryo feels BUMI's fundamental has not changed much to justify the rally. In fact, coal outlook is deteriorating, recent results were disappointing, while concerns on REPO, coal asset acquisitions, and rising debts have yet to be clarified. Only 80% of BUMI's volume is committed, of which only 65% is priced, hence we see downside risk given BUMI's track record in meeting volume targets. BUMI is also not as cheap as the market perceives, based on US$70/t coal price, 12% volume growth, 20% drop in cash cost, BUMI currently trades at 6.1x '09 PE (on par with ITMG) and at 8.6x '10 P/E (a premium to ITMG). Note we are comparing to ITMG which is perceived as the 2nd export proxy for Indo coal but with better corporate governance. Maintain Underperform on BUMI.
Good news for Herald-BUMI?
Reuters reported that Indonesian govt plans to issue a presidential decree to allow miners to carry out underground mining in protected forest. Daisy has anticipated this in her July 2008 note: http://research1.ml.com/C?q=BZGoPenpe%2bCk5PS86RCFUQ%3d%3d&s=tanch. The news bodes well for BUMI's Herald that owns an underground Dairi zinc and lead mine. Daisy has not assign any value for Herald, however she believes the impact to BUMI is minimal. Based on existing ore reserves of 6.5mn tons or 7yrs of production, we value Herald at only A$64mn (mkt cap A$88mn) vs BUMI's mkt cap US$2.6bn. This excludes the 7.3mn tons of resources, that could turn into reserves if Herald obtains a new forestry permit.
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