UBS Investment Research - Bumi Resources 1 of 3 acquisitions overvalued

1 of 3 acquisitions overvalued

FBS acquisition overvalued
Government agency, MAPPI, has declared Bumi's acquisition of Indonesian coal mine, Fajar Bumi Sakti (FBS), overvalued by US$39m (15%) relative to the initial price of US$247.5m. It furthermore concluded that the acquisitions of coal miner, Pendopo, and coal contractor, Darma Henwa, were fairly valued. The decision brings an end to a six month investigation into the value of Bumi's recent acquisitions, which minority shareholders' have criticised of being 1) overvalued and 2) owned and/or controlled by the Bakrie family.


Details remain scarce
We highlight that details pertaining to MAPPI's valuation remains scarce, in particular relating to assumptions applied to the valuation, hereunder coal and fuel price as well as production estimates. Needless to say, these assumptions will have a major impact on the value of the acquired companies.

Related party transaction risk remains
We furthermore highlight that MAPPI does not appear to comment on whether the acquisitions are related party transactions and, thus, whether they require shareholder approval. As such, there remains an overhang risk associated with the acquisitions, in our view.

Valuation
Our suspension on Bumi was lifted on 1 June when we cut our rating to Neutral from Buy following a 361% rally since 15 Jan 09. At the same time we raised our 12-month PE target multiple 4% to 7.9x from 7.6x, which is 20% below the sector average, while rolling over our EPS estimate 25% to mid-2010 Rp264. Our price target remains Rp2,100 which is based on a PE multiple.