Bahana Sekuritas FW: Bahana Spotlight: Bumi Resources - From hate to love (BUMI-BUY-IDR3,050-TP:IDR4,200) - Good report

Higher TP of IDR4,200; 2% hike in 2011 earnings; Reiterate BUY In the past nine months, Bumi Resources (BUMI) has been transformed from one of the most hated stocks to a loved one (exhibit 5), partly helped by the entrance of Vallar.  As we like BUMI fundamentally and given buoyant coal prices, we reiterate our BUY call on the stock with higher DCF-based target price of IDR4,200/ share (no CG discount).  Within our model, we made a number of changes: (1) Production schedule from 72.5-87.3-108-109m tons to 66.1-79.7-100.3-109m tons over 2011-2014 respectively, inline with management’s guidance; (2) Raise benchmark price from USD100-105-108-111-115 to USD115-110-108-116-124 for 2011 to 2015 (inflation of only 1% thereafter); (3) Revise tax rate from 40% to 45%; (4) Fuel price from USD88-93-96-99-103/bbl to USD95-103-111-119-127. The net impact of these changes is 2% higher earnings in 2011 and 27% cut in 2012.  

2010 net income guidance: USD280-290m, in line with our estimate In 2010, BUMI provided guidance of a strip ratio of 10.3x, coal mined of 60.9m tons, coal conveyed of 60.46m tons, coal sold of 60.1m tons, ASP of USD70.2/ton and inventory of 4.5m tons. Net income is expected to reach around USD280-290m, in line with our estimate.  In 2011, BUMI expects 15% contracted volume and price (exhibit 9), implying substantial upside assuming coal prices remain strong throughout 2011.  BUMI provided ASP guidance of USD77/ton (using a benchmark price of USD110/ton), compared to our estimate of USD81.4/ton using USD115/ton benchmark price.  Our sensitivity analysis shows that every USD5/ton change in the coal benchmark price would impact our 2011 earnings by 14%.  

Building to overcapacity the entire supply chain BUMI plans to increase combined production from KPC and Arutmin from 64-65m tons in 2011 to 100-101m tons by 2014.  To back this, BUMI is adding capacity over its entire supply chain, from mining to transportation to ship loading.  (1) By adding more heavy equipment, it is increasing its mining capacity at KPC from the existing 50m tons to 70-80m tons while at Arutmin from 23-24m tons to 30-40m tons by end of 2012. (2) BUMI is raising its transportation capacity by building one overland conveyors (OLC) (i.e. from the processing unit to the port) and six feeder conveyors, allowing increased total conveyor capacity from the existing 13.5km to 58.7km by 2013 and 91.7km by 2015 (exhibit 8). (3) The company is also doubling its stock piling capacity by 2015. (4) It is increasing port capacity from the current 92m tons to 130-150m tons by 2013. (5) BUMI is constructing shallow panamex birth to accommodate 60-70m tons of panamax vessels. (6) The company has in 2010 expanded its ship loading capacity from 4,500tph to 7,500tph, and is now planning to install second ship loaders to increase ship loading rates. (7) To support all of the conveyor belts and ship loaders, BUMI is planning to install three individual 15MW power plants to reduce fuel cost.