Reiterate Sell - We reiterate our Sell (3S) rating with target price of Rp580. At current PE of 10.1x 2009E (30% premium to peers), the stock is unattractive in our view given unconvincing 1Q09 earnings (while we expect 2Q-4Q earnings to trend down on lower coal prices), and higher balance sheet risk.
1Q09 earnings: production & sales disappointed - Bumi's 1Q09 operating profit rose 76% y-y and accounted for 27% of our full-year. In our view, the 1Q09 performance was unexciting with production and sales falling (by ~10 y-y), although this was partly offset by the drop in cash cost (-10% y-y) and higher ASP (+30% y-y).
Expect earnings to trend down in 2Q09 onwards - Bumi says that it now has 4mt of coal in inventory. The management guides 2009 ASP to be in mid-US$60s/t, reflecting the lower regional coal contract price (vs. our forecast of US$60/t). Thus, we expect Bumi's earnings to trend down in the coming quarters. At present, the company has contracted 80% of its volume.
Balance sheet - Despite US$267mn of EBITDA in 1Q09, net debt position saw only a slight decline to US$1.18bn from US$1.3bn in December '08 (taking into account the US$300mn ST investments). This partly reflected a big jump in 1Q09 capex to US$119mn.
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