Credit Suisse - Bumi Resources (BUMI.JK, Rp770, N, TP Rp945) - Too big to ignore

Bumi Resources (BUMI.JK, Rp770, N, TP Rp945) - Too big to ignore

· We are reinstating coverage of Bumi with a target price of Rp945 (30% discount to DCF-derived equity value) and NEUTRAL rating.
· While we believe Bumi is intrinsically undervalued, stock rerating may be possible only if management allays investors' concerns on disclosure, meets/beats operational and financial targets and peers' performance, and returning capital to shareholders.
· Even then it is difficult to ignore Bumi's 70% ownership of KPC and Arutmin, highly scaleable and efficient mines with 2 bn tonne (t) reserves and plans to expand production capability to 100 mn tpa.
· Our volume assumptions are slightly below guidance. And while we raise unit cost above previous estimates and guidance, on sector-wide evidence of stickiness of cost base, we expect total unit cost to drop from the peak US$51/t observed in 3Q08 to US$40/t in FY09E.
· Assuming changes in operating assumptions, we estimate Bumi's cash breakeven to be at about US$55-60/t equivalent regional coal price in 2010. Barring the acquisition of Herald Resource in 2008, we have not included any non-coal cash flows in our forecast.

Credit Suisse - Medco Energi (MEDC.JK, Rp2,025, N, TP Rp2,000) - Lower oil price assumptions, with cut in earnings estimates

Medco Energi (MEDC.JK, Rp2,025, N, TP Rp2,000) - Lower oil price assumptions, with cut in earnings estimates

· The Credit Suisse global oil team has revised down its oil price assumptions, as the recovery in oil price is likely to take longer than previously expected. We have now assumed a WTI oil price of US$50/bbl (barrel) for 2009E, down from US$60/bbl; and US$60/bbl for 2010E, down from US$80/bbl. Our long-term oil price assumption is now US$70/bbl, down 30% from US$100/bbl.

· In addition to the oil price assumption change, we have also assumed a 15% cut in Medco’s capital expenditure for likely difficulties in getting financing. Consequently, we have reduced our 2009E net profit estimate by around 33% to US$38 mn and our 2010E estimate 38% to US$35 mn. 2009E and 2010E EPS are revised down around 33% and 38%, respectively.

· Medco has always traded at discount to its valuation. Therefore, we retain our target price of Rp2,000, as it reflects an implied oil price of US$42/bbl. We believe in the long-term potential upside of Medco, but retain our NEUTRAL rating, as we expect a fall in earnings this year on lower oil prices and oil/gas output.