MBSS, Barging through, CLSA

MBSS is a coal transportation and logistics provider servicing the coal industry predominantly in Kalimantan. It is 51% owned by energy investment group Indika Energy with the founding family still in charge of day to day operations. MBSS has a diversified customer base and strong track record in growing operations on stable margins. It is not a shipping company and is leveraged to coal production growth. We initiate coverage with a BUY recommendation and target price of Rp2,000/sh


Diversified customer base
MBSS serves a portfolio of 10 large coal companies and 2 of the 3 large domestic cement producers for their domestic coal transportation. Contracts are for 1 to 5 years with annual pricing and US$389m worth of contracted volumes are already committed. The operations MBSS serves are geographically diverse spread across Kalimantan and Sumatra.

Strong track record
Rapid growth during the past 5 years has not come at the expense of profitability. MBSS has been able to maintain operating margins of 30% and net margins of 24% both with and without the domestic protectionist cabotage law. A focus on value-added freight charter and disciplined cost management (fuel is passed through to the customer) have driven this performance.

Fleet expansion to drive growth
MBSS plans to expand its fleet to capture additional transportation opportunities for existing customers and Indika group affiliates. During the next 2 years the company will add 20 tug and barge sets and 3 floating cranes to capture additional volumes from existing customers. Longer term, prospects are leveraged to continued coal production growth in Indonesia which we forecast to grow at 9% production CAGR.

Valuation looks attractive. Initiate with a BUY
MBSS is not a shipping company and international shipping markets do not drive fundamentals. Given its exposure to mining sector production growth, the stock should be benchmarked against regional mining services peers. We value MBSS on a blend of 12x 12CL/13CL PE and 6.5x 12CL/13CL EV/Ebitda. We initiate coverage with a BUY rating and target price of Rp2,000/sh implying 31% upside.

Download file : Indonesia MBSS Final