Indopremier PT Indika Energy Tbk Rp2,675 – BUY

INDY is accumulating assets to synergize and secure long-term growths. We increase INDY target price from Rp2.187 previously to Rp3.208 per share based on equity value of each assets as of 1Q09 (Table 1). We view INDY’s current asset value and strategies will be able to support current share prices and to realize our estimated TP. At 2 (two) times 1Q09 book value, we believe PTRO valuation contribution to INDY is at the low side, and thus provide INDY for both earnings and TP potential upsides. INDY has a strong balance sheet and a portfolio of prospective investments, and at yesterday’s closing price, our TP will provide investors with an 20% of capital gain over 12-months horizons. BUY

Since INDY is a holding company of various of public and non public companies, we use sum of the part method to calculate the equity value of INDY.
1. First, the equity value for KJA, we use DCF method. Post 1Q09, we find higher equity value for KJA due to lower WACC (13.2% vs. previously 14.3%, as well as higher ASP (US$52/ton vs. previously US$50ton).
2. For TPEC, with an estimated FY09 earnings of US$19.86mn, we apply an 11 times earnings multiple which refer to multiple valuation of overseas as well as local E&C companies.
3. We decide to include PTRO in calculating INDY’s equity value since the acquisition process is now waiting for the shareholders’ approval and the Investment Coordinating Board approval. For PTRO, we apply 2 (two) times 1Q09 book value multiple, a discount to similar size of mining contracting company listed in BEI. The assumption is considered underestimated and we reckon the equity value of PTRO
is much higher than our preliminary assumption. We view PTRO earnings contribution, given current amount of ongoing projects (listed below), can be meaningful or significant for INDY revenue base.
4. For others, we apply both earnings multiple valuation as well as investment costs, to total an equity value of US$119.4mn.
5. With these approaches, we arrive at a value of INDY of Rp3,208 per share, and thus provide investors a 20% prospective capital gain from yesterdays closing price of Rp2,675.