ANTM:Pirates of Somalia - Mandiri

Antam’s ferronickel cargo, carried by “MV Sinar Kudus” – owned by PT Samudra Indonesia (Samin), has been hijacked in the Gulf of Aden, off the coast of Somalia. Fortunately Antam has confirmed that the cargo has been fully insured with extended premium with PT Wahana Tata. Based on our channel check the sum insured reaches US$64mn (vs rumor in the market of US$100mn) or translating around 2,500 tons ferronickel or 13.9% of FY11F production. However, the company has not confirmed the cargo’s value yet. The ransom is around US$3.5mn and might be increased up to US$9mn. Currently it is still on a negotiation process, and we expect Antam is likely to bear most of the ransom. We have no changes in our forecasts until we get more clarity on this.

Somali Piracy background. According to Aegis intelligence report, Somali pirate gangs continue to grow and the hijack remain at a broadly constant level despite of international counter piracy efforts. Some general patterns have emerged, where the most vulnerable vessels appear to be those transiting the Gulf of Aden at less than 15 knots in daylight and those with a low freeboard. In 2010, 56 incidents were reported – including 17 hijacks and 29 cases of vessels being fired upon. Somalia is already in a Joint War Committee (JWC) watch list.

How is Wahana Tata’s balance sheet? Based on Financial Institution Supervisory Agency, Wahana Tata’s total asset as of end 2009 reached Rp802.9bn. Considering the total sum insured of around Rp600bn, it would be a significant burden if it is borne alone by Wahana Tata. Based on our channel checking, Wahana Tata has diversified the risks and reinsured most of that amount to several reinsurance companies including PT Tata Reasuransi Indonesia.

Worst case scenario. Due to the 3-month shutdown plan of its FeNi II in 4Q11 Antam has limited production capacity to meet orders from European buyers this year, so that it will carry over the demand to 2012. Therefore, If Antam and PT Samudra Indonesia could not meet the pirate’s demand or complete the negotiation, we would see potential loss of around Rp570bn toward its FY11F revenue or 6-7% from our FY11F estimates. Antam might reimburse it but it will take times considering the quite significant amount of the claim vs the insurance company’s total assets.

Maintain Neutral. We have not changed our forecasts as we are waiting for the confirmation from the company. We maintain our TP of Rp2,400/share and maintain our Neutral rating. ANTM now is traded at 10.1xPER11F.