Berlian Laju Tanker, Buana Tailwinds - U/R, 36% upside to SOTP - CLSA

The IPO process of Berlian Laju Tanker’s domestic subsidiary “Buana” is now underway. BLTA is looking to raise up to US$150m in proceeds. Pricing/allocation is scheduled for the 05th of May

Buana is a purely domestic Indonesian based tanker company with a focus on energy related shipping services serving the oil, gas, FPSO and FSO and chemical sectors throughout Indonesia which have a strong growth profile given Indonesia’s large energy reserves. It operates a total of 21 tankers and is protected from foreign competition via the Cabotage principle.

The event is major catalyst for BLTA for the following reasons:
1. Unlocks considerable value in a higher-growth/more attractive asset currently depressed and embedded within BLTA’s business.
2. De-leverages the parent balance sheet allowing for a more streamlined capital structure (Net/Debt Equity falling from 2.1x to 1.7x)
3. Provides for better access to capital markets fuelling the expansion and growth of the domestic assets

Specialty chemical tanker rates breaking-out positive for the parent business

With 80% of revenues from specialized chemical shipping, BLTA is the most leveraged play on a recovery in chemical tanker rates which is well underway.
Specialty chemical freight rates have spiked sharply this year (Clarkson data) which will be reflected in 1H11 earnings. In addition the company has minimal exposure to rising fuel costs as 2/3 of its contracts are on a “time charter” basis in which the customer is responsible for paying fuel charges.

Trading at 0.5x PB the stock offers a unique risk/reward profile as it is not pricing in the unlocking of value from the Buana IPO or the recent sharp increase rise in chemical tanker rates. The stock also looks very attractive when compared to regional shipping company’s which are currently trading at 1.1x P/B.

Our SoTP values BLTA at Rp524 per share implying 36% upside from current levels.