In our opinion, at this juncture, discussion on BUMI’s operational performance is rather insignificant. We believe the concerns on BUMI are more on the cash flow, and uncertainties on the solutions. Non- preemptive rights issue is the first step. Two things to watch: (1) there are actual buyers willing to pay Rp2,368/share, (2) and the buyers are credible investors. Based on several considerations, (1) BUMI’s good and strategic assets, (2) the group strategy using equity-linked debt; we believe the end game is still improving share price.
Operational-wise, a good Q2. Gross margin improved to 39.7% in Q2 (vs 33.9% in Q1) as ASP rose to US$71.6/ton (vs US$62.9/ton in Q1), while COGS/ton only up by US$2.8/ton to US$44.8/ton. Volume sales eased slightly to 15.1Mt (Q1 : 16.0Mt), while production volume was flat at 15.2Mt (Q1: 15.1Mt). EBITDA in Q2 was US$344.4mn vs Q1 of US$250.7mn.
But debt, still rising, and cash falling. BUMI has US$4,189.8mn of debt in 1H10 (vs US$3,779.9mn in Q1). Cash, restricted cash, and short-term investments in 1H10 were US$405.0mn (vs US$528.9mn in Q1). Financial charges in 1H10 were US$257.4mn (of which US$190.9mn was paid, US$66.5mn accrued to CIC). After US$155.3mn tax payment portion for BUMI, BUMI still has US$70.4mn cash excluding US$89.8mn dividend from Newmont Nusa Tenggara. Despite still a positive one, that leaves a narrow room to maneuver.
Then it came back, to our initial argument, which is de-leveraging. By September 30, BUMI has to complete its non-preemptive rights issue exercise which is expected to bring in US$510.5mn fresh fund. That helps as BUMI’s short-term loans are priced between 12-18% p.a. BUMI is currently trading at 7.1x FY11F Bloomberg consensus, 30% discount to its peers which traded at 10-11x FY11F PER. To match its peers, two things we mentioned in the first paragraph are the precursors.
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