Delta Dunia Makmur, The Tide is Coming, Mandiri Sekuritas

For almost 2 years DOID stock has been battered badly due to a lot of
disappointment and misunderstanding on its bottom line following the
internal restructuring and reorganization process. Consensus has been
downgrading DOID earnings and target price. We foresee potential rerating
on the stock as new IPOs are looming, supported by pricing power in the
industry which mostly OB rate now happened at US$2.5/bcm or about 25%
increase on average. We reiterate our Buy rating on DOID with lower TP based
on EV/EBITDA target of 6x at Rp1,000/share vs its fair value of Rp1,250/share.

Transition cycle – new contracts. Renewal, new contracts and repricing would
lead BUMA into the new “honeymoon” period of its business cycle trend, which
would help enhance or improve its operations performance and regain its
profitability from the old squeezed margin contracts. BUMA has just successfully
amended and expanded contracts from Bayan Group totaling US$1.4bn. In
addition, recently BUMA also has signed new contract with KPC as a direct
contractor for Elang pit worth US$130mn.
Expecting 10-15% OB growth in 2012. BUMA produced 334mn bcm OB in FY11
and 34.7Mt coal in FY11 relatively below their initial target due to higher rainfall in
4Q11 than expected. The company expects 10-15% OB growth and about 5-7%
coal extraction growth in FY12F. Most of the incremental growth come from its
top-five customers including Bayan Group, KPC, Berau and Adaro.
Capex expansion theme. Buma has spent around US$220mn capex in 2011
including buying 28 excavators and 121 dump trucks . This year DOID has allocated
US$300mn for capex spending for Buma with about US$100mn to be allocated for
a replacement. Most of the new fleets are from Caterpillar (CAT) which can improve
operations as it guarantees availability rate of 90%.
Proper rules & function for a better future. BUMA now has applied stricter rules
for the replacement to improve its fleet productivity. Mr Akhil Puri (ex Director in
General Motor) now has been appointed as the COO in Buma, working with Mr.
Sujoko Martin (ex CFO of Pama Persada) to enhance all the operations and finance
divisions performance.
EV/EBITDA driven - Maintain Buy. DOID has the most challenging bottom line to
forecast in the industry. To simplify DOID’s valuation, we changed our TP approach
using EV/EBITDA multiple target of 6x which results in a TP of Rp1,000/share vs fair
value of Rp1,250/share. In term of FY12F EV/bcm basis, BUMA trades very attractive
at only US$3.5 which is about 25% discount to Pama. Reiterate Buy.

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