Corporate Result Flash Bayan Resources - Bahana

4Q10 performance
§ BYAN’s 4Q10 earnings fell 23% q-q to IDR252b, bringing full-year net profit to IDR741b (+443% y-y), 10% higher than ours and 25% higher than consensus estimate. Growth in full-year earnings stemmed from 13% y-y higher revenues stemming from higher selling prices and production. COGS grew by just 1.3% y-y, translating to 80% y-y gross profit growth.
§ Despite 13% q-q growth in revenues in 4Q10, 20% q-q growth in COGS resulted in 4.5% q-q drop in gross profit. COGS were driven by higher stripping ratio resulting from heavy rain falls (as the company had to mine deeper) and lower q-q on production.
§ Besides COGS, opex increased 15% q-q on higher selling expenses, which resulted in 12% q-q drop in operating profit.

Outlook
BYAN expects to produce 14.5-15.5m tons in 2011 with ASP of USD85-87/ton and cash cost of USD64-67/ton. We assume production of 15.1m tons, ASP of USD89.7/ton and cash cost of USD67/ton and arrive at net profit of IDR1.8t (+146% y-y).

Recommendation and valuation
While we expect some adjustments to our earnings resulting from 2010’s spill over effect, we will continue to maintain our HOLD call on the counter. We arrive at DCF value of IDR16,300, excluding the acquired new mines. Therefore, we apply a 15% premium to our DCF and arrive at our target price of IDR18,700. HOLD on limited upside.