• EPC contract signed for US$1.3 billion: PT Bukit Asam Transpacific Railway (BATR) has signed an Engineering, Procurement & Construction (EPC) contract and an Operator & Maintenance (O&M) contract with China Railway Group Ltd for the construction and maintenance of a 307km railway from Tanjung Enim mine to a new port in Lampung. The EPC contract will cost US$1.3 billion while the O&M contract will cost US$3.5 billion (for 20 years). The railways will have an annual capacity of 27MM tons in which guaranteed 25MM tons will be allocated to PTBA.
• Financing to be done by 28 April 10 or PTBA could take over the lead: According to PTBA, the joint venture is required to secure financing by 28 April 2010 or PTBA will have the right to take over the lead of the joint venture with minimal compensation to other partners. Currently, this signing also involved potential financing from China Exim Bank. With US$516MM in cash and US$624MM in reported FY09 equity, PTBA should be able to contribute to the US$390MM in equity portion of the project and take on the US$910MM in debt, assuming 100% ownership.
• Catalysts: The next catalyst will be the financing agreement signed, or PTBA will take the lead of the joint venture by 28 April 2010. Currently the part railway is designed to be build close to the existing railway of PT. Kereta Api to speed up the process.
• Maintain OW and raise Dec-10 PT to Rp24,000: In view of these developments, we believe PTBA is committed to completing this railway. As this railway is completed, volume could rise from 11.6MM tons in FY09 to 36.6MM tons by FY14E. We have revisited our model and incorporated the new coal price deck and FY09 result.
Consequently we raise our FY10E EPS by 21.5% and our Dec-10 PT from Rp23,000 to Rp24,000.
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