Shortly after closing the ‘controversial’ acquisitions, Bumi is now looking at a coal mine being offered by BHP. As many greenfield projects are still on hold, ongoing acquisitions raises doubt of Bumi financing and its vulnerability in volatile debt market. Therefore as we lowered the risk-free rate, INDO19, (from 11.7% to 7.6%), we will put a 40% discount over its DCF of Rp4,007. We upgraded target price from Rp1,816 to Rp2,400, and upgrade our recommendation from Neutral to Buy.
Going after BHP Billiton coal mine. BHP Billiton said on June 9 that it had decided not to go ahead with the Haju trial coal mine in Central Kalimantan province on Borneo island because it did not fit with its long-term investment strategy. Haju was stage one of the Maruwai coal project, the 100%-BHP Billiton owned metallurgical coal deposit in Central Kalimantan, which was expected to produce 1mn tons of coking coal per year. Bumi is said to compete with 3 other local investors.
While it still has many projects in need of capital. BUMI has other attractive assets such as 100% ownership in Citra Palu Mineral (CPM). CPM planned to operate a gold mine at Poboya in Central Sulawesi Province in 2013. Gold was discovered in one of the six blocks in the mining area and resources were estimated to be about 62 metric tons of contained gold. The company is exploring for more gold in five other blocks. BUMI plan to inve! st US$400 mn-US$1bn in the project. We have not assumed any value on CPM and other non-coal assets. We also excluded non KPC, Arutmin coal mines in our DCF calculation. Subtraction of US$300.2mn in short-term investment in Recapital Asset Mgmt was also included. However debt to acquire the assets was incorporated.
Therefore we put 40% discount to our new DCF. We upgraded our target price from Rp1,816 to Rp2,400, and recommendation from Neutral to Buy. Fine- tuning has also been made to our earnings estimate to reflect our new Rp/US$ FY09E forecast of 9,772.
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