UBS Bumi Resources Corporate Update

Resuming coverage with Outperform

Stock rating: Hold
Share price: IDR 2175.00
Estimated fair value range: IDR 2280 - IDR 3080
View versus MSCI Indonesia: Outperform

At a glance
After a six-month rating suppression, we increase our EFVR and upgrade the stock from Hold/Underperform to Hold/Outperform. We expect coal prices to benefit from growing demand in the medium-term. This, coupled with volume growth, should support
earnings. The stock currently trades at a discount to peers and market average which, to us, is unjustified. Above-average profitability Bumi's 1Q 2009 operating profit rose 76% y/y. However, with lower coal contract prices settled this year, effective from 2Q onwards, we expect Bumi's full-year 2009 profitability to decline. Nonetheless, we expect Bumi's margins to remain higher than those of many mining
peers as well as higher than Bumi's own historical average.

Investment case
This year's fall should mark the bottom in regional coal contract prices, in our view. Coal remains highly leveraged to Asia's GDP growth. With early signs of economic recovery in emerging Asia, we foresee sustainable demand from the region in the next few years. With rational supply additions, we see a balanced demand/supply equation for coal, which should favor a growing exporter like Bumi. Bumi's solid
expansion plans (expected volume growth of over 100% by 2012) should help to capture growing need for energy in key growth markets like China and India.

Even after the rally in Bumi's share price, the stock currently trades at a discount to the Indonesian market, to its peers as well as to its own historical five-year average on 2010E P/E. Bumi has lower downside earnings risks than many other domestic commodity stocks. After being suppressed on ratings and publishing for more than six months, we resume our coverage and upgrade Bumi from Underperform to
Outperform.

Company description
Bumi is Indonesia's leading coal producer and the world's third-largest
coal exporter.

Industry view: Volume growth ahead
The Indonesian government encourages the use of coal to satisfy the country's growing energy needs. Coupled with the currently tight global energy markets, this brightens the outlook for coal sales and pricing domestically as well as internationally. Emerging Asia -- China, India, Indonesia, etc. -- are becoming increasingly reliant on coal, chiefly used for electricity production, as a source of energy, as industrial production is on the rise in these countries.

Valuation methodology
We value Bumi based on P/E. Based on a P/E of 12.9x and our 2010 estimated earnings of IDR 208/share, we get our fair value of IDR 2683. A +/- 15% volatility band gives us our new (rounded) EFVR of IDR 2,280-3,080. Our assumed P/E is based on the current average trading multiple of Bumi's domestic and international (Asian) coal peers.

Statement of risk
Key risks to Bumi's outlook and our EFVR include: 1) Bumi's major shareholder, the Bakrie family, is actively involved in the management of the company and may not always have the same objectives as minority shareholders; 2) Bumi's long-term strategy may change, which could significantly alter the outlook and equity value of Bumi; 3) the mining industry is exposed to regulatory changes and potential
environmental damages; and 4) an economic growth path different from our scenario, especially for China, the largest coal consumer, might have a positive or negative impact on earnings.