BUMI (TP Rp4,750) - Nomura: BUMI, BI maintain rate and extend SBI holding period - Nomura

Our mining analyst, Isnaputra Iskandar, reaffirms his BUY rating on Bumi Resources (BUMI IJ) and raise price target to Rp4,750, implying 2011-12F EV/EBITDA of 8.3-4.3x, on better-than-expected 2010 results. He has also done a few assessments on potential BUMI/Vallar debt/equity swap to settle the CIC debt, and suggests that the CIC debt-Vallar share swap would be the most likely scenario, saving pre-tax interest costs of US$361mn p.a. Another development is the change of auditor to PwC. Please find attached Nomura latest report on BUMI.

As expected, Bank Indonesia (BI) kept its policy rate on hold at 6.75%. Nomura still expects BI to continue its policy normalization process, with another 25bps 2Q11 if headline inflation resumes an upward trajectory. Nomura also expects 25bp hikes in 3Q11 and 4Q11 taking the policy rate to 7.5% by 4Q1. With FX reserves growing to US$105.7bn by end-March and sterilization costs increasing BI may also raise the RR on IDR deposit again. On the holding period on BI bonds (SBI), BI also announced the it would extend the holding period on its bonds (SBI) from the current one month to six months, effective 13 May. Nomura has already raised this possibility last year and in the context of likely continued capital inflows, Nomura expects further capital management measures. Please find attached Nomura latest economic report.