20140127-Maybank_KERPL-Bumi_Resources_Minerals_22页_1017kb

Summary of Bumi Resources Minerals (BRMS IJ)

Core Content

Bumi Resources Minerals (BRMS IJ) is a diversified mining company with a current share price of IDR230, a target price of IDR350 (representing a 52% upside and a 40% discount to NAV). The company's market capitalization is USD483M, and the average daily trading volume is USD0.4M. BRMS is currently under-researched and is being recommended as a BUY due to several positive catalysts and attractive valuations.

Main Points

• Change of Ownership: BRMS is set to transfer a 42% stake to China Investment Corporation (CIC) over the next 1-2 months. This is expected to improve project execution and market sentiment, with CIC becoming the second-largest shareholder.
• Dairi Project: The lead and zinc project in North Sumatera is in the final stage of funding from Chinese banks and is expected to kick off in 4Q14. The project is anticipated to be completed in about three years.
• Upside Potential: The company has upside potential from its Newmont and Gorontalo assets. The Newmont Elang and Gorontalo Sungai Mak and Cabang Kiri projects could add IDR105-211/share to the NAV, which is approximately 30-60% of the current NAV.
• Valuation: BRMS is currently trading at a 60% discount to NAV and a 2014F P/BV of 0.4x, which is 31% below the average of domestic peers. The target price of IDR350 suggests a 0.6x 2014F P/BV, which the analysts believe is conservative.
• Corporate Structure: BRMS is controlled by Bumi Resources (BUMI IJ) with an 87.09% stake. It has seven main subsidiaries, including Newmont Nusa Tenggara (NNT), Dairi Prima Minerals (DPM), Gorontalo Minerals (GM), and others.

Key Assets

1. Newmont Nusa Tenggara (NNT): A gold and copper mine in West Sumbawa with a total concession area of 87,540 hectares. The mine is part of a consortium and includes the operational Batu Hijau mine with 7.2b pounds of copper reserves and 7.3m ounces of gold reserves.
2. Dairi Prima Minerals (DPM): A lead and zinc project in North Sumatera, with a total of 11.05m tons of reserves and an 80% stake by BRMS.
3. Gorontalo Minerals (GM): A copper and gold project in North Sulawesi, with a 80% stake by BRMS. JORC-certified resources are estimated to add IDR48-95/share to NAV.
4. Citra Palu Minerals (CPM): A gold asset in South Sulawesi with 96.97% ownership by BRMS. It has a mining concession of 138,889 hectares and is undergoing JORC certification.
5. Bumi Resources Japan (BRJ): A 100% owned subsidiary by BUMI, primarily engaged in marketing services for coal and other minerals in Japan.

Investment Risks

• Commodity Prices: Weakening prices could impact the valuation of key assets.
• Project Delays: Delays in project execution may affect the timeline for monetization.
• Put-Call Options: The put-call option structure could create some overhang on the stock, but the analysts believe it is unlikely to be exercised in the short term.

Financial Forecasts

• Earnings: BRMS is expected to post losses in 2014 and 2015 of USD20.5m and USD16.9m respectively due to minimal dividend income and high interest costs.
• Gearing: The company's net gearing is forecasted to remain low at 27.2% and 28.5% for 2014 and 2015, respectively. If additional debt is raised for the Dairi project, gearing could rise to 55.7%, which is still manageable.

Target Price Derivation

The target price of IDR350 is derived using the SOTP methodology. The valuation includes:

• NNT Batu Hijau: Contributes 62% of the EV estimate.
• Dairi Prima Minerals: Contributes 34% of the EV estimate.
• Bumi Resources Japan: Contributes 4% of the EV estimate.
• A 40% discount is applied to account for the holding company status, early development stages, and potential overhang from the put-call options.

Conclusion

BRMS is viewed as an asset play rather than an earnings play. The analysts believe that the company's valuation is attractive and that the upcoming ownership change and progress in the Dairi project will be key catalysts for future growth.