PT Delta Bumi Makmur Tbk (DOID) via its subsidiary PT Bukit Makmur Mandiri Utama (BUMA) has an opportunity to take up roughly 3 million ton annually of coal production at mine site of PT Kaltim Prima Coal from PT Darma Henwa Tbk (DEWA).
In a company research report published by Macquarie Equity Research today, the brokerage initiates with an outperform and sets up a price target of Rp1,950 per share. DOID now is traded 5.38% jump to Rp1,760 from opening level of Rp1,670 per share.
BUMA has signed head of agreement with both KPC and DEWA for a possible coal subcontracting in KPC mine site.
"We initiate coverage on DOID with an outperform rating and a target price of Rp1,950, representing 23% upside to the current share price. We like the stock given its attractive industry growth and margin, company's proven ability to take market share," said Macquarie's analysts Albert Saputro and Adam Worthington in a research.
DOID, which is now 40% controlled Northstar Tambang Persada Pte Ltd, just accomplished a leverage buyout of 99% interest in Buma worth US$550 million last year from its founder Johan Lensa.
Delta Makmur Corporate Secretary Andre Soelistyo confirmed that Buma has signed head of agreement with DEWA in relation to a possible opportunity for Buma to be subcontractor for DEWA.
"Head of agreement is just preliminary and non binding, therefore there is no conditions and value of subcontracting contract. We would inform new contracts to public in detail if we finalized the agreement."
Macquarie believes that DOID via its coal contracting subsidiary, BUMA, is well positioned to benefit from increasing coal production in Indonesia, which is estimated will grow by 10% per year. in the next 3–5 years. This is given its top-two market position, proven production track record (evidenced by the company’s ability to increase market share from 5% in 2000 to 19% in 2008), as well as high quality and reliable customer base."We believe the company’s customers, which include top ten Indonesian coal producers (Bumi Resources, Adaro Energy, Kideco Jaya Agung, Berau Coal, and Bayan Resources) will be the drivers for Indonesian production growth going forward. The company could also benefit from rising coal price environment via higher coal extraction and overburden
removal.
In 2008, Buma seized 19% of market share after the biggest coal contractor PT Pamapersada Nusantara, wholy owned by PT United Tractors Tbk (UNTR). BUMI has appointed DEWA, an affiliated coal contractor, to do a lucrative mining contracting services in Bengalon mine, KPC and Asam-Asam, Arutmin. Around 40% stakes in DEWA was acquired by BUMI's subsidiary PT Bumi Resources Investment early last year worth Rp2.41 trillion or US$256 million.
