Mandiri Sekuritas BNBR: For those who miss the rally

Lower solvability risk. The company entered into debt restructuring agreement that provides some relaxation after high solvability tension resulting from its Rp4.26tn obligation to Northstar consortium which originally scheduled to mature this year. Basically, this debt restructuring agreed on (1) lengthening debt maturity (Rp310bn on 2009, and Rp3.95tn on 2012), and (2) charging interest expense (15.0%-19.0% ) that will be deferred and paid as a bullet payment along with principal maturity.

Stronger cash position. In late April 2009, the company sold 24.5% ownership in SPIJ, steel pipe manufacture subsidiary, raising US$55.5mn cash. We view it positively because (1) SPIJ has been less profitable relative to BNBR's listed subsidiaries, and (2) the proceeds ensure the company's solvability to meet its Rp279.0bn tranche B debt which l matures on Sept 2009.

Buy BNBR, get UNSP, BTEL, and ENRG for free! A check on BNBR value composition reveals that at the current price of Rp83/share, BNBR value is approximately equal to its ownership only in BUMI and ELTY. Therefore, rather than collecting all of BNBR's subsidiaries stocks individually, it would be more profitable to acquire them collectively by buying BNBR shares. Moreover, investors would get not only its listed subsidiaries, but also its non-listed infrastructure subsidiaries. These non-listed subsidiaries have already won several infrastructure projects which are expected to start in the next couple of years, once the economy recovers.

Valuation. We derived BNBR's fair price using SOTP method. We apply a book-value multiple of 1.0x to value the non-listed subsidiaries. For listed subsidiaries, we use market prices and Mandiri Sekuritas' fair price estimate separately (except for ENRG that uses consensus fair price estimate because it is outside our coverage). Market price-based SOTP results in BNBR fair price of Rp129/share while fair price-based SOTP results in BNBR fair price of Rp106/share.

What are the risks? Main risks in investing on BNBR stock are changes in ownership on its subsidiaries and commodity price fluctuation that heavily impacted BUMI, UNSP and ENRG performance.