PT Borneo Lumbung Energi & Metal Tbk - 1H11: Production on track, sales is behind target but slightly ahead of our expectation - Credit Suisse

● BORN’s 1H11 comes slightly ahead of our expectation, at 48% of our full-year estimates and 40% of consensus’ full-year estimates. It booked sales volume of 1.3 mn t (51% QoQ) and maintained ASP of ‾US$254/t (flat QoQ). BORN is on track with production at 1.7 mn t for 1H11 (26% QoQ), ahead of our forecast at 61% of our
FY11 production estimates.
● Operating income increased 25% QoQ on higher sales volume, while earnings were down 6% due to forex loss and higher effective tax rate. Total cost increased 9% QoQ, primarily due to higher fuel and logistics costs.
● In the short term, the volume risk due to river logistics remains as we enter into the drought season and BORN has only built up minimum inventory at its ISP. Further, there is potential downside to our ASP of US$245/t, given widening discount and weakening HCC price. Every US$10/t drop in ASP must be compensated by
a 200k increase in sales volume.
● We maintain NEUTRAL and target price of Rp 1,600/share based on 16x 2011E P/E due to BORN’s short-term risk. Further pressure on share price may create buying opportunities for BORN.