Bumi Resources: Key takeaways from analyst meeting (BUMI, Rp2,975, Buy, TP: Rp3,665) - Mandiri

Bumi Resources: Key takeaways from analyst meeting (BUMI, Rp2,975, Buy, TP: Rp3,665)
In 1Q11, excluding the EcoCoal, BUMI’s average selling price was US$96.4/ton, +44.5%yoy. Combination of KPC and Arutmin ASP was US$87.6, or up by 39.7%yoy. While for EcoCoal’s ASP increased by 24.4%yoy to US$49/ton. From here, it is obvious that higher rank coal prices gain much higher or get more premium compare to low rank coal.
BUMI has closed an attractive deal for Japanese contract at US$145/ton coal price benchmark for 1 year. BUMI has indicated that its FY11’s ASP should be more than US$90/ton.

(Therefore BUMI and HRUM that have larger portion in high quality coal compare to peers should have gain more upside in their earnings)

Cash production cost in 1Q11 was posted around US$35.6/ton or increased by 7% yoy, around 15% higher than our estimates of US$30-31/ton, mainly due to higher Strip ratio and higher fuel price
Derivative gain from equity swap and call option posted in profit and loss was unrealized gain with regard to mark to market terms of the contract agreement. So if BUMI's share price underpressure, it potentially reverses or lower in coming quarters.
BUMI also confirmed that Q211 was still a wet season, so they only expect moderate production growth at only 15-15.5Mt. The coal production will be ramped up to 18-19Mt per quarter in Q3 and Q4 2011.
There is still no clarity yet about the Bumi Plc’s debt swap transaction with CIC loan following the CB worth US$2.07bn for 75% stake acquisition in BRMS. However, our take is that If the debt swap transaction with CIC is not successfully done, BUMI will be selling the CB directly to other investors in which in our view it will expose Bumi Plc’s shareholders of 20.6% ownership (assuming total shares of Bumi Plc of 382.4mn after Step-up transaction and CB conversion of 79mn shares) to uncertain or unfriendly shareholders.
In absence of CIC debt swap issue, BUMI will pay around US$750mn (including IRR 19% and 5% penalty) in cash for early repayment option for the 1st tranch of US$600mn from CIC loan in October 2011. Source of funding will be around US$400-500mn from internal and the remaining would be from debt refinancing.
With regard to their capex, BUMI expect financial lease to hike up to US$400-500mn in the future to support its expansion capex (with regard to mobile fleets, and other instructure developments) and encourage its freecashflow. Capex for 2011 is estimated about US$150-200mn.
Currently we have buy rating and BUMI is traded at 12.3x- 10.8x PER11F-12F. We will review our earning forecasts following new accounting policies.