Borneo Lumbung Energi & Metal - HOLD; Price Target: Rp950

Borneo Lumbung: HOLD; Rp850;
Price Target : Rp950; BORN IJ
Awaiting catalysts

By Ariyanto Kurniawan +6221 39832668;
June Ng +603 2711 2222

At a Glance
· FY11 net profit of Rp 1.8tr was in line with expectations
· Expect 24% production growth to 4.2m tons in FY12F
· Limited upside until further confirmation that the acquisition of Bumi Plc is value accretive. Maintain Hold, Rp950TP

Comment on Results
Borneo Lumbung Energi (BORN) reported FY11 net profit of Rp1.8tr (+424% y-o-y) - in line with our and consensus estimates. The strong result was supported by solid top line growth as well as higher margins. Revenue increased by 121% to Rp6.1tr while gross and operating margins expanded to 56% and 42% from 48% and 34% respectively, driven by higher ASPs. On a quarterly basis, net profit was flat at Rp499bn as higher revenue was offset by higher production costs.

In FY12, we expect production to grow 24% to 4.2m tons mainly due to production ramp-up at Kohong. We will update the operating matrix once we have it.

Recommendation
BORN has underperformed peers following the acquisition of a 23.8% stake in Bumi Plc London. Although valuation looks attractive at 7x FY12F PE (vs peers of 7-12x), we expect upside to be limited until there is further confirmation that the acquisition is value accretive, and it has control over the operations of Bumi Plc. Maintain Hold, Rp950TP pegged at 9x FY12F PE and 2x P/BV (-1STD).


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source: DBS Group Research date 3 April 2012