CLSA IndoCoal - Bumi Resources - Unbalanced sheet (SELL)

Stock: Bumi Resources (BUMI IJ – Rp1,020)
Rec, Target: SELL, Rp650
Date: 14 April 2009
Event: Company update

Bumi Resources debt is at it historic high of US$1.7bn as of Dec08and this has been a main concern especially as the added debt has been used to finance non-core assets, most of which are non-cash generating.

We also have our doubt on dividend talk as cash and short-term investment, totalling US$631m as of Dec08, is partly controlled by Tata, partly trapped in Recapital and partly restricted. Meanwhile forecasted operating cash flow this year would be mostly spent on debt instalments and capex.

We revise our earning up, by 15% in FY09 and 75% in FY10, largely reflecting changes in debt and assets compositions that resulted in lower interest expense and some contribution from recently acquired assets. We however view earnings visibility would be limited until there is more clarity on debt and asset injections.
We think investors have massively reduced their positions on the counter while debt problem at parent company, Bakrie and Brothers, has gradually been resolved hence there is less selling pressure.

However, escalating debt level to finance non-core and mostly non-cash generating investments have been our main concern. We also view earnings visibility is limited.
Recent share price rally, doubled from its low, also means that Bumi is not that cheap relative to peers, trading at PE09 of 4.0x (30% disocunt to peers) and EV/EBITDA09 of 3.0x (somewhat at par with peers), given its risk.