Delta Dunia: Consensus number may still be coming down (DOID, Rp1,040, Buy, TP: Rp1,400) - Mandiri

􀂄 We found an indication of weak 2Q11earnings mainly due to margin compression driven by a jump in depreciation cost, spare part-maintenance cost, and accounting changes in salary and bonus payment from cash basis into accrual basis. In addition there would be one-off refinancing cost of US$16-17mn. Overall it potentially reduces our FY11F operating margin by 2-3% or equivalent to Rp130-200bn earnings vs our previous FY11F net profit forecast of Rp454bn (consensus Rp554bn).
􀂄 Our forecasts and consensus numbers may have underestimated the affect of DOID’s Double Declining (DD) method that may result in a 60% yoy jump in depreciation cost this year, to US$150-160mn (vs our FY11F of US$105mn), given the capex expansion. In FY11, DOID is budgeting US$250mn capex with potential upgrade to US$280mn if certain projects are awarded, versus US$200mn capex in FY10 and US$75mn in FY09.
􀂄 Change into Straight line method (SL) is a critical factor for DOID’s bottom line in our opinion which hypothetically could save significantly up to US$30-40mn of depreciation cost in early years
􀂄 On the balance sheet side, the completion of US$138mn right issue has
strengthened its balance sheet, increasing the company’s bargaining
power to its lender.
􀂄 On the operating side, overburden removal reached 155.7mn bcm in 1H11 or 43.3% of our forecast. Company is now guiding 350mn OB removal, or 2.7% lower than previous number of 360mn bcm. To achieve this target, company needs to ramp up its OB number to 32-33mn bcm per month, versus 27-28mn bcm in May and June 2011.
􀂄 Delivery of its new fleets is on track which mostly came in June and July 2011. The new equipment is is expected to lift revenue in 3Q11. As of June 2011, DOID has spent US$90mn capex and expects fleets deliveries worth U$160mn in 2H11F.
􀂄 We are reviewing our forecasts with possible downgrade following the 2Q11 results that will be announced around the end of this month