Corporate Result Flash - Delta Dunia Makmur - Bahana

1Q11 performance
§ On the back of IDR182b forex gain in 1Q11, Delta Dunia’s (DOID) net profit grew 8% y-y to IDR165b, in line with our estimate but higher than consensus forecast. It is worth pointing out that partial attribution on DOID’s 1Q11 positive earnings growth also stemmed from lower interest expense of IDR103b, down 23.1% y-y from IDR134b in 1Q10.

§ On the operating front, continued high rate of rainfall (+18% y-y), the strengthening of IDR to USD, and doubled salaries expense resulted in 23% y-y decline in operating profit to IDR176b, lower than our and consensus estimates. This translated into 1Q11 operating margin contraction to 11.3% from 17.9% in 1Q10.

§ On a positive note, 1Q11 higher overburden removal of 75.3m bcm (+23.2% y-y) brought up revenue to IDR1.6t, +20.6% y-y, in line with our and consensus estimates.

Outlook
Despite DOID’s weak 1Q11 operating performance, we believe that margin improvement is set to unfold in the following quarters. Nevertheless, we might have to revisit our model given 1Q11 margin achievement of only 11.3%, much lower than our full-year estimate of 18.2%. On a more positive note, we expect strong revenue growth to persist in the subsequent quarters, due to higher fleet capacity on sites.

Recommendation and valuation
With potential downgrade in our 2011 operating profit, we might have to lower our DCF-based TP from IDR1,600 currently. Nevertheless, we do not plan to change our BUY recommendation, given higher production and expectation of weather improvement in the subsequent quarters.