Mandiri Sekuritas MEDC: No immediate effects from project delays

We made a confirmation with the company in respond to the latest news article regarding the postponement of its 3 key projects. The company mentioned that the projects (Senoro, Sarulla and block A) are still in progress and on track with the company’s and our schedule, despite still waiting for green light from the government. This includes contract extension and approval to export the LNG. As such, we are maintaining our earnings forecast and target price of Rp3,700 (20% discount to our DCF-! based fai r price of around US$0.45/share). Given some 27.6% upside from current share price, we upgraded our recommendation to Buy from Neutral.

Expect the 1st LNG shipment at the beginning 2013. For the Senoro project, the company expects the first LNG shipment to be at the end 2012 or beginning 2013, which more or less similar on the delivery schedule from the gas field to the plant. The company mentioned that the construction of the LNG plant may take around 2 years to complete. Such statement indicates that the project kick-off will be sometime in 2010, which shows that they still have some time to obtain approval from the government. Note that it also applies to the other 2 projects m! entioned in the article (Block A and Sarulla). To be conservative, we assume that the Senoro project will start producing in 2014.

May obtained contract extension for Block A. For Block A in Aceh, the company is still waiting for the government to extend the contract, as the current contract expires in 2011. We believe such obstacle may be easier to solve, as the operation of this project is in line with government expectation of boosting oil production while at the same time contributes income to the country.

Still renegotiating Sarulla’s gas selling price with PLN. While for Sarulla, obstacles are slightly different from the other two projects, as it only needs PLN to agree with the electricity selling price upward adjustment of around US$7cents/kWH (from previously US$4.6cents) before they could further continue the project. We believe that they could also obtained the price adjustment in near future, as other project such as Wijaya Karya’s Tampo Mas power plant has obtained an agreement to sell the electricity to PLN with a price of around US$6.5cents/kWH.