Flash: Bumi Resources (BUMI.JK): Sell: A Seemingly Good 4Q08 But Look Closer 4Q08 operating profit disappoints - cost ↓, but volume missed - Bumi's 2008 net profit of US$645mn came in 23% above our estimates but largely helped by lower-than-forecast tax (9% eff. rate vs. our forecast of 30%). Operating profit (US$1.1bn), a better gauge on performance, was 9% below our estimates, largely reflecting the lower-than-expected 4Q08 sales volume. On a more positive note, production cost improved reflecting the drop in oil price.
Balance sheet conundrum - Net debt stood at US$1.34bn at end of 2008 (vs. our est. of US$1.6bn). While this is seemingly positive, the difference was due to the unexercised share-buyback plan and should have resulted in an even lower gearing, in our estimates. We expect net debt to further rise in 2009 as Bumi completes the third acquisition (Pendopo).
'09-11E outlook: lower oil helps… - Softer oil price outlook (vs. 2008) and lower gearing will help support earnings; factoring in Citi's latest oil price forecast sees our Bumi 09E estimates up by 73% and DCF-based TP up to Rp580 (from Rp470 previously).
…but coal price still the key earnings risk - Despite recent settlement between Xstrata and Chubu at US$70/t (in-line with Citi's forecast), outlook on coal price remains uncertain, hence posing a key earnings risk - we estimate earnings to fall 3-4% for 1% drop in coal price from our base-case assumption.
Maintaining Sell - Despite the positive earnings adjustments, balance sheet risk remains, warrants a discount - at 4.9x PE Bumi trades in-line with peers.
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