CIMB Tambang Batubara Bukit Asam Quick takes - EPC contract signed

(PTBA IJ / PTBA.JK, OUTPERFORM - Maintained, Rp17,100 - Tgt. Rp20,200, Basic Resources)

Maintain Outperform and target price of Rp20,200 (still based on NAV) for PTBA. PTBA has just announced that its JV with Transpacific Railway has signed an EPC contract for its new railway and port with China Railway Group. The contract value is US$1.3bn and would stretch four years, in line with our expectations. A US$3.5bn 20-year O&M contract has also been signed, also within our expectations. The EPC contract would pave the way for the JV to secure 70% financing from Chinese banks. The project appears to be rolling out as scheduled, despite market pessimism, which is very positive for PTBA as the railway would help solve transport bottleneck problems and enable PTBA to ramp up its production capacity. Even in the worst case of a shake-up in Transpacific's shareholding, PTBA appears more than willing to increase its ownership in the JV, in our view. We have imputed the NAV of the new railway project in our valuation, also expecting 2014 completion. As the market starts to factor in upside from this railway, we expect a stock re-rating.