PT Borneo Lumbung Energi & Metal Tbk - Volumes at risk, while price is calming down - Credit Suisse

● Downgrade to NEUTRAL. We downgrade BORN to NEUTRAL and lower our earnings by 18% for 2011E and 6% for 2012E on lower-than-expected sales volume. Our house also cut its shortterm price assumption from US$313/t to US$291/t for 2011.
● Short-term downside risks to consensus. As a new company, BORN is continually negotiating on its pricing in its attempt to establish its brand and position. Prolonged negotiations have caused shipment delays, which have resulted in lower-thanexpected sales. As we enter into the drought season, we expect volumes risk to remain in 2Q and 3Q.
● Sales volumes for 2Q and 3Q may remain below initial target. With 2Q results coming up by end-July, we expect the disappointment in sales volume to temporarily impact the share price. As our house expects little short-term price upside, we
believe there will be little catalysts to boost the share price.
● We thus lower our target price to Rp1,600 and downgrade rating to NEUTRAL. We prefer thermal coal play on the potential coal price pick up in 4Q11 and improved weather, which should boost production.