Many analysts and fund managers have a love and hate relationship with this stock. Some things will never change. However, this time around, it could be hard to ignore the positive trading momentum behind this name:
1.Energy price – oil up while US$ strengthens. Oil spiked up to US$71.33bbl (WTI) despite the fact that the US$ was a bit stronger. The DOE inventory stats confirmed the API numbers of yesterday and showed a 4.4 million bbls drop in crude inventory and a 1.55 million bbls drop in gasoline. OPEC says it won't consider an increase in output until oil is at US$100/bbl.
2.China strength – Macq strategist Paul Cavey expects China’s industrial production (IP) number for May to come in above 8.0%. In April it grew by 7.3% yoy and consensus is looking for 7.7%.
3.Solid production in April and May – Bumi had a slow start of the year, with Jan-to-March production totaling to 11.3mn tons. But April and May, the company produced about 10mn tons, or a monthly run-rate of 5mn tons. Considering that monthly run-rate should be 15-20% higher during the dry season (June onward), Bumi may produce more than 60mn tons for the year (vs. Macq estimate of 60mn tons).
4.Short term investment value intact? – When the Bakrie goup is perceived to be having financial difficulties, stock market investors have largely written off the value of Bumi’s US$200+mn cash placement in investment firm Recapital. The prospect of Bumi getting the money back improves after another coal company, Adaro, successfully redeemed its US$100mn investment in Recapital last week, without any loss.
5.Could be bigger and stronger out of the crisis – It appears that Bakrie & Brothers (see 1Q09 financial statements note 39 subsequent event, attached) has the option to settle a big part of its borrowings by issuance of new shares. We cannot rule out the group emerging out of this global crisis with a stronger balance sheet thanks to a successful debt-to-equity conversion deal, which has yet to happen.
6.Acquisition opportunities – There appears to be a number of high profile assets for grab. BP is auctioning off its ONWJ West Java field (the 6th biggest oil field in Indonesia producing 25k bpd). BHP is letting go its coaking coal COW in Haju Mine, Central Kalimantan. We imagine the Bakrie group could be strong contender for these kinds of assets.
Macquarie analysts Adam Worthington & Albert Saputro rate the stock as Underperform, based on the team’s cautious view on thermal coal and US$70/ton estimate for JFY10. But this morning they highlight that at US$80/t for JFY10, Bumi Resources would be a stand-out among the regional coal peers in terms of valuation, trading on 10-11x FY10.
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