Bumi Resources: 1Q11 net profit was 22% ours, 23% consensus (BUMI, Rp2,975, Buy, TP: Rp3,665)

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Bumi Resources: 1Q11 net profit was 22% ours, 23% consensus (BUMI, Rp2,975, Buy, TP: Rp3,665)

BUMI posted 1Q11 results with new accounting policies to be in conformance with the IFRS of UK new GAAP. There is no significant impact to the bottom line. The summaries of the accounting changes as follows:
BUMI changed its revenue recognition from full consolidation to proportionate consolidation (adoption of PSAK No 12-revised 2009). However, there is insignificant impact on its bottom line. Based on PSAK No 22, no more goodwill amortization which it will be subject to impairment valuation.
BUMI changed its accounting policy for deferred exploration costs to adopt more conservative approach following a review of accounting treatment of BRMS’s deferred exploration costs in 2007 and 2008. Previously BRMS capitalized deferred exploration costs for all costs related to exploration and evaluation process. But now, it will be capitalized only when certain conditions are met
BUMI also changed its amortization method of deferred exploration and development costs for KPC and Arutmin from straight line (SL) to unit of production method which deemed to be more reasonable basis following the expected pattern of the future economic benefits of such capex assessed by management. We expect lower depreciation expenses in early years and higher in later years following production expansion. It should be more favourbale to BUMI’s earnings since it will lead to more stable margin due to matching cost following the production volume compare to SL.
BUMI changed its translation method for VAT recoverable for KPC and Arutmin from historical exchange rate to closing exchange rate. This is part of the ongoing dispute with the Government of Indonesia (GoI) from change in the VAT law in 2001 when coal became VAT exempt supply. BUMI will be netting off the VAT and royalty payable.
Based on the new GAAP, BUMI posted 1Q11 net profit of US$112mn (-15.2% yoy) or represent 21.7% our FY11F. This includes reversal of Gallo sale gain of US$36mn. In addition, BUMI posted significant increase of derivative gain amounting US$105mn (vs US$9mn last year) which was done through its subsidiary, Enercoal, through equity swap and call option agreement with Credit Suisse.
Due to accounting policy changes, BUMI posted net adjustment related to accounting policy of around US$400mn in its restated retained earnings resulting lower retained earnings of US$1,320bn as of 31 March 2011.
We will review our forecast following the new accounting policies. Currently we have Buy rating on the stock. BUMI is traded at 12.3x – 10.8x PER11F-12F

source: PT Mandiri Sekuritas