Mandiri Sekuritas KIJA: Lights up

The power plant’s supply assurance is knocking at the door. The syndicated loan lenders have indicated to recommit on the company’s power plant project, which would pave the way for the company to obtain the remaining US$40mn disbursement in the near term, for them to be able to complete the power plant project and partly (US$20mn) used to repay the bridging loan from CIMB-Niaga. At the same time, Bekasi Power’s long-term contract with PLN is nearing finalization, as the urge of supply needs comi! ng from t he area. We call buy for the stock, maintaining TP: Rp265/share, based on our rolling valuation 2011.

Recommitment leads to project completion. After such prolonged negotiation, the US$106mn syndicated loan lenders have signified to recommit on the power plant project, where this may lead the CIMB-Niaga as the lender of the matured bridging loan facility (US$35mn equity financing & US$20mn debt) to drum down its earlier call of KIJA’s divestment on the power plant ownership. We view this as the guide to positive end result for KIJA, considering the bank’s role as also the lead manager of the loan syndication.

PLN long-term contract soon to be finalized. In the mean time, the long term contract with PLN for being the sole-buyer of the power plant supply is a one step away, as the only previous impediment concerning on operational area license has already been secured by early June. Thus, there will be no other reason for PLN not to appoint KIJA, considering the absence of other alternative supplier within the area. We think that long term contract with PLN, in addition, will also give more reason for KIJA’s lenders to retain the power plant in favor of KIJA.

Underappreciated with rock-bottom valuations. We believe that the two events will be the crucial trigger to smoothen the completion of the power plant project and eventually secure the full-ownership. KIJA would potentially obtain some US$80mn of annual power revenues (US$48mn of EBITDA), which expected to contribute 75% of total revenue onwards. Our rolling 2011 valuation stands KIJA at Rp455/share. We call Buy with maintain TP Rp265/share, currently trades at 80% discount to our NAV11F and PER11F of 5.4x, on the assumption of full operations of the power plant! .