Indonesia Market Summaries 25 August 2014

PT Acset Indonusa Tbk (ACST, Rp 3.245) intends to expand its business into two new segments. Both are rental and sales of construction and heavy equipment; rental and sales of tower crane and passanger hoist. (Investor Daily)

The value of the acquisition of two subsidiaries, PT Benakat Integra Tbk (Bipi, Rp 121) by PT Saratoga Investama Sedaya Tbk (SRTG, Rp 5.000) fell to USD 60 million from the initial USD 78.5 million. The value of the purchase by SRTG subsidiary - Interra Resources Ltd - is based on consideration of oil reserves. (Investor Daily)

The new government Jokowi-JK intends to increase high-level income tax, above 500 million per year. The new government also intends to grant tax amnesty for entrepreneurs who intend to bring home money from abroad. It is not yet fully confirmed because there are pros and cons. (Kontan)

PT Bumi Resources Tbk (BUMI, Rp 196) of Bakrie Group, get approval from its subsidiary bondholders to extend the repayment period up to 2018. The Bondholders of BUMI subsidiary named Enercoal, also agreed to decrease to 6% coupon bonds of the previous 9 5%. (Kontan)

Issuers of industrial land, PT Surya Semesta Internusa Tbk (SSIA, Rp 835) considering to take loan from a number of local and foreign banks  amount of USD 126 million, equivalent IDR 1.46 trillion. The Funds will be use to rebuild the SSI Tower office building in Jakarta. (Bisnis Indonesia)

Asia Link Pte Ltd and issuers pay TV of Lippo Group, PT First Media Tbk (KBLV, Rp. 2,200) intends to release its subsidiary, PT Link Net Tbk (LINK, Rp 6.650) through private placements. If the release is realized as much as 1.82 billion shares (60%), the potential of fund obtained by both shareholder is IDR 12.1 trillion. (Bisnis Indonesia)

for Indonesia Market Summaries 25 August 2014

Bumi Resources Gearing rose to an alarming rate

Bumi Resources:  Gearing rose to an alarming rate (BUMI, Rp630, TP: Rp500)
BUMI posted net loss in 1Q13 of US$62mn vs US$100mn net loss in 1Q12 due to less forex loss and gains in derivatives, which within our FY forecast of a net loss at US$228mn. Operating profit stood at 19% of our FY forecast and 15% consensus’s. Equity value eroded by 40% as net gearing spiked to an alarming rate of 14x vs 9.5x end of 2012, ultimately suggesting a potential risk of capital raising. Maintain Sell and TP maintained at Rp500 implies 22% downside.

Production volume in-line.  BUMI produced 19.6Mt (+25%YoY), which was one of the best operational performing quarter on the basis of good weather, still within our FY forecast of 78Mt. However, weak ASP at US$72/t (-22%YoY) dragged down its earnings and margins as the Company recorded 8.3% operating margin in 1Q13 vs 11.5% in previous quarter or 14.5% in 1Q12. Strip ratio was lowered to 9.5x (-12%YoY) but was partially offset by higher fuel consumption, which lowered total cash cost.

Greater balance sheet risk. As of March 2013, BRMS, BUMI’s affiliated subsidiary, recorded worsening working capital to negative US$390mn vs US$270mn at the end of 2012. Operations worsened as Newmont’s 1Q13 gold and copper production continues to fall 36%YoY and 7%YoY respectively. Consolidated at the Group level, BUMI may face financial commitments to support BRMS, which will put BUMI’s balance sheet at risk.

Overhang on deleverage plan continues and debt services worsen. BUMI’s non core asset BRMS monetization plan continues to extend beyond schedule due to a bleak industry outlook and weak earnings performance from Newmont. With interest expense remaining high at US$146mn in 1Q13 and performance deteriorating at the EBITDA level, creditors may pose a reason to worry when debt services fall below 1x.

Indonesia Market Summaries 16 April 2013 Part 1

Bumi Resources recorded sales volume increase of 20.6% in 1Q13

In Q1, BUMI claimed that they have sold 19.1mt of coal which shows a 20.6% growth yoy supported by a 23.7% yoy growth in coal production. The company claimed that this is their highest Q1 production since BUMI was started since heavy downpour usually disrupts production early in the year. BUMI also managed to lower their stripping ration from 10.8x to 9.5x this year. However, BUMI still suffers from ASP plunge as they recorded a 1Q13 ASP of USD73/ton decreasing from USD92.7/ton last year. BUMI claimed that they expect a USD75/ton ASP this year; thus, they are relying more on sales volume to improve their performance for the year. (Kontan)

Comments: Indonesia Market Summaries for BUMI in the first quarter of 2013, BUMI’s sales volume is 25% to our full year forecast vs the usual 20-22%, making the performance a strong one in our view due to inventory carry over from 4Q12 sales.

Coal production is expected to pass 400mt in 2013

The national coal production this year is expected to pass 400mt, 4.4% growth yoy, as production already reached 93mt in Q1. The national coal producer association (APBI) claimed that rising demand from Japan, South Korea, Thailand, and Taiwan will help boost production. Low rank coal production already grew by 20% due to demand from local power plants. APBI stated that coal ASP is still at USD88/ton as of April 2013, but he is confident that it will reach USD100/ton by the end of the year. (Bisnis Indonesia)

Summarecon will build a new township in Bandung

Aside from the township they are planning to build in the Greater Jakarta area, SMRA is also planning to build a new one in Bandung with an area of 200ha. The exact location is also yet to be disclosed but it is currently in the land clearing process and sales will start in 2-3 years. The target market will still be mid-to-upper income segments. As Indonesia Market Summaries posted, the SMRA has prepared more than Rp1tn for the land acquisition in both locations. (Kontan)

Ciputra Development expects 1Q13 revenue growth of 170%

For Q1 this year, CTRA is expecting revenue of Rp1.5tn which is 170% higher compared to the same period last year supported by landed housing sales. In 1Q13, CTRA launched two new residential projects in Medan and Semarang with an area of 100ha each. The company targets sales of Rp1.2tn from the two projects, where the company invested Rp200bn for the construction. (Bisnis Indonesia)

Coal Industry Overburdened

The Indonesian Coal Sector Report, titled “Overburdened” suggesting another challenging year with more work or earnings pressure for coal producers across the industry.

Interestingly Bumi Plc on the same day, after report dissemination, made another disappointing announcement on the quality of its balance sheet. The new management of Berau Coal Energy (BRAU IJ) has concluded that there is not sufficient evidence to support the capitalization of certain expenditures totaling US$94mn, in particular US$56mn attribute to deferred stripping cost and US$38mn attributed to landowner payment. Therefore, the management likely to expense in FY12 income statement.

Shifts in the global energy mix and in coal industry growth sources in developing economies, create a challenging outlook. We reinitiate our coal sector with an Underweight rating as we expect coal price to linger in 2H13 and further earnings disappointment  in 2013F, leading to unattractive valuations at +1STD or about 15x P/E13F. We have a Neutral rating on PTBA and HRUM; a SELL rating on ADRO, ITMG, BUMI and BRAU.

Tight pricing for 2013, limited signs of recovery. Although the storm may dissipate and the market may see limited downside on coal prices, with 1Q13 at US$91/t (-17%YoY), we see coal price to linger in the coming quarters and we foresee US$90/ton as our 2013 reference price (-21%YoY), or about 5-10% below consensus. Spot price now at US$86.7/t. Indonesia coal export fell 6%YoY or 26%MoM along with slower Chinese coal import at 5%YoY in February 2013 due to continued sluggish power demand which fell 12%YoY, and less restocking activities as inventory remains high at 22 days.

Evolving law: torrent of regulations.  Indonesian government has made a steady progress in mining regulation reform and continues to adjust its mining regulations that, in commercial and practical terms, are more stringent. Plan to seek control on national production or export (quota) are intensely considered. Plans to change from FOB to CIF for Indonesia commodity export trade will likely have negative sentiment to the industry

Where do we turn for 2013? Value plays are very difficult to come by these days especially in the mining universe due to volatile coal prices. While it is intuitive to buy the most geared name for a greater return, but it poses a potential risk of capital raising (BUMI) if coal price recovery do not materialize. Therefore, high quality names with strong balance sheet, growth potential and high cash margin will provide better support (PTBA). Companies that have expensive interest debt, lack of tax shield due to LBO structure will suffer more this year (BUMI, ADRO and BRAU).

Where we differ? Consensus may not adequately incorporate mine-life reserves (adopting an in-perpetuity approach) and potential downside risk from future treatment of actual stripping costs to align with new IFRS. Our FY13 earnings forecast are 22-59% below consensus (ex BUMI). Our adjusted blended valuation incorporates DCF as the core method, blended with earnings multiples, favors PTBA but disfavors HRUM &ITMG given its shorter mine-life reserves.

Bumi Resources No change stake in BRMS as of September 2012

Bumi Resources: No change stake in BRMS AS OF September 2012 (Notes as of 27th Feb 2013)

Company’s disclosure - In response to this morning news about BUMI’s change stakes in BRMS from 87% to 45%, Company has clarified and confirmed officially that BUMI IJ still controlled 87% stake at BRMS AS OF September 2012. Management of the company did not want to give further comment and did not want to speculate on the news, despite the registered file to Idx has clearly showed that BUMI’s ownership in BRMS was reported only at 45%.

Our take: Where does the money go? based on our channel check and market talks, there was a high possibility of doing repurchase agreement or “repo” between Bakrie Group with several investors on BRMS shares. And repo rate at this current condition for Bakrie Group should be very expensive in our view. A repo is economically similar to secured loan, where the seller is effectively the borrower. As we dig further, accounting wise, repo may not change the company’s ownership structure as it depends on the essence of the transaction.

However, the interesting question and our concern are :

1. Company’s announcement is focusing the stake ownership AS OF September 2012 while the registered file from the berau administration (custody) reported ownership AS OF 25th February 2013. Repo is “off balance sheet” term where the ownership of BRMS should remain under BUMI IJ unless there’s default.  The file registered to idx clearly showed that the ownership has effectively transferred to other parties and BUMI IJ now only owns 45% stake at BRMS, raising QUESTION about the repo status whether is still current or default. In fact, we have seen that BRMS share has been under pressured couple days before the file registered to idx announced.
2. IF the REPO transaction TRUE, then where does the money go? Should it go into BUMI’s balance sheet to support its operational or debt repayment? Or should it go to Bakrie Family? The answer will be seen in the FY12 audited results. IF the money goes to Bakrie Families, then BUMI should record affiliated party A/R (receivables) as a LOAN to shareholder and would definitely bring more negative sentiment toward BUMI share.

Back in November  2009, BUMI and Bukit Mutiara entered in agreement to grant loan up to US$300mn in 2009 with IRR 19% and until now it still stays at BUMI’s balance sheet as a long term receivables with lack of clarity on the status as it has been renewed until 2015.

Bumi Resources Stock loan agreement

Bumi Resources: Stock loan agreement – Repo for BRMS (Rp720 - Under review)

BUMI finally confirmed there is repo transaction. BUMI finally confirmed on its FY12 financial notes (see notes 51cc) that in 2012, Company entered into 12-month Stock Loan Agreement, which we categorize this as a repo transaction, with several parties which the Company agreed to lend BRMS shares to the Parties or other party appointed by the Parties. But based on the agreement, Company and the parties agreed that any rights or obligations attached to BRMS (including but not limited dividend rights, vote, rights to attend A/EGM) will remain in full control of the Company and never pass or transferred to the Parties or other party appointed by the Parties.

As usual, disclosure risk will remain the main issue in Bakrie Group stock which raising investor concern or confidence. However, this is in line with our expectation (please refer to our previous notes last month on 27th Feb 2013, see below). There is lack of further details about the transaction terms therefore we have difficulty in tracing the fee or cashflow from this transaction to the Company.

Based on our channel check the BUMI’s stake ownership in BRMS may be reported continue to decline temporarily due to the “under-the table” transaction as long as the agreement still applies. In our view this overhang will continue to warrant BUMI trading at discount to peers and suggest diminished market confidence or trust.

Beware of financial support for BRMS. Company also reported that as of 31 December 2012, BRMS and its subsidiaries has negative working capital of US$269mn while BRMS has a very limited source of revenue.Therefore to support its going concern, BRMS plan to extend the maturity of long-term loans that will be due within 1 year. In addition, BRMS also has received a letter of support from BUMI to provide financial support for the settlement of BRMS’s group obligation. Therefore, we may see potential fund raising to support financial or cashflow problem within the Group which may raise market concern on the valuation at this juncture.