Macquarie Bumi Resources (Underperform) - First read into 1Q09results...weak production and price offset by better cost control andlower tax rate

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Stock: BUMI IJ
Name: Bumi Resources
Price: Rp1,520.00
Market Cap (m): Rp29,494,080
Market Cap (m): US$2,781
Current valuation (DCF): Rp2,350.00
12mth price target: Rp500.00
Recommendation: Underperform



Event
Bumi reported its 1Q09 results with net profit up 30% YoY to US$125m from US$103m. The results highlight weak price and production offset by better cost control and lower-than-expected tax rate. Our first read into the 1Q09 results are as follows:

Impact
Production was down roughly 10% YoY at 11.3mt. This represents 19% of our FY09 forecast and therefore we see downside risk to our FY09 production forecast. The company explained that the drop in 1Q09 production volumes was due to seasonally challenging operating conditions, as well as to efforts to control supplies in a soft market and rebuild inventory.
More spot contracts contributed to lower-than-expected ASP. Whilst the 1Q09 ASP was up 30% YoY from US$57.9 to US$75.4, this is lower than our expectation, due mainly to more-than-expected spot delivery in 1Q09 that were was realised at a lower price. The company has also lowered its pricing guidance for the full year to mid-US$60s/t, roughly inline with our FY09 forecast of US$64.4/t.
Production cash cost down YoY, but total cash cost up. The company's production cash cost in 1Q09 was around US$27.5/t (down 11% YoY from US$30.7/t). However, total cash cost (revenue - EBITDA) increased YoY to US$43/t from US$39/t due to a higher ASP (leading to higher marketing commissions), and lower production output.
Lower-than-expected tax rate helped profit, but...don't extrapolate. The company's effective tax rate for 1Q09 was a mere 14% vs our expectation of 45%. This contributed to the company achieving 1Q09 net profit of US$125m, which represents 30% of our FY09 forecast. However, we don't think extrapolatingthe 1Q09 tax rate and net profit into the FY09 results would be appropriate given the company's guidance of a 30% effective tax rate for the full year and a declining average realised price (as the company starts delivering its new coal contracts at a lower price).
It is also worth noting that Bumi has already started consolidating its recent acquisitions (DEWA - equity accounted, FBS - consolidated, and Pendopo - expenses have been capitalised) despite the regulators (Bapepam) still re-assessing the fair value and validity of the acquisitions.

Action and recommendation
We reiterate our Underperform recommendation on the stock.