BASML - BUMI Solid 1Q not an indicator of 2009 performance, in our view

1Q09 seen solid, but our concerns on 2Q onward remains
We share Bumi’s optimism that 1Q results are likely to be solid. We see net profit surging 228% YoY, revenues up 73% and EBIT 305%, largely driven by 2008 contracts that were carried forward and settled at much higher prices. Yet, a robust 1Q may not be a pointer to BUMI’s full-year performance prospects, as half of its 2009 volume is still not priced, and coal demand is weakening even as coal price falls. Maintain Underperform.

Higher ASP in 1Q might not last through 2009
We estimate ASP to increase 47% YoY to US$85/t in 1Q. Yet, with about 20% of BUMI’s volumes still not committed and around 50% not priced yet, we see ASP falling 47% QoQ to around US$46/t and net profit dipping 88% in 2Q and beyond. Coal price currently hovers around US$60/t, more than 50% below 2008 prices.

Watch out for balance sheet issues
Our concern has been more with BUMI’s balance sheet rather than its P&L. In the past, BUMI has negatively surprised with higher-than-expected debt and capex. In 4Q, BUMI’s debt surged to US$1.3bn, up 4-fold in six months. With the acquisition of three coal assets (at about US$600mn), we see its debt levels rising further in 1Q. If coal price slides, we are concerned that interest costs and debt repayment would also weigh on earnings and cash flow.

We are still not buyers of the stock
Unless coal price recovers, 1Q seems like peak-cycle earnings. While we do not see a plunge in coal prices here on, we also do not see any catalysts for a coal price rally in the next 3-6 months. The stock’s current valuation based on US$70/t coal price, 12% volume increase, and a 20% drop in cash cost, is not as cheap as perceived – at 5.4x 2009E PE and 7.6x 2010E PE, comparable to ITMG’s 2009E PE of 5.8x and 2010E PE of 7.8x (consensus estimates).