UBS IB : Bumi Resources (PT lowered to IDR 2,800)

Bumi Resources - Seek and you shall find

􀂄 Unknown buyer primary beneficiary of CIC deal
We believe select events and transactions over the past 12 months and, in particular, over the past few weeks explain Bumi Resources’ (Bumi) decision to take on high-cost 19% debt from CIC. More specifically, we believe it could be related to the recent acquisitions and undisclosed buyer(s) of Bumi’s shares.

􀂄 Is the Berau Coal acquisition next?
Reuters reports that Recapital Advisors is the highest bidder for Indonesia’s fifth largest coal miner, Berau Coal, with a bid of US$1.3bn. The report quoted sources as suggesting that Recapital is backed by the Bakrie Group. As Recapital is not a miner, we highlight the risk that Berau Coal might be sold to Bumi at a higher price at a later time. However, management states it has no intention of acquiring Berau Coal.

􀂄 Return on capex remains pending
We estimate around US$1bn has been spent developing Bumi’s coal assets over the past five years, while production remains at 2007 levels. We further estimate that US$1.1bn has been spent exploring and developing non-coal assets (iron, copper, oil and gas), but cash flow from investment has yet to materialise. Management highlights that mining investment is a long-term commitment.

􀂄 Valuation: lower price target to Rp2,800
We lower our price target to Rp2,800 following our earnings estimates’ revision from US$0.025, US$0.034 and US$0.043 to US$0.026, US$0.030 and US$0.037 for 2009/10/11. We maintain our Buy rating given recent underperformance, while our target PE of 10x and a WACC of 16.4% are 29% below and 30% above the sector averages, respectively.