Dec 7, 2010

UBS raises DOID target price to Rp2,230

Coal mining contractor PT Delta Dunia Makmur Tbk (DOID), parent company of PT Bukit Makmur Mandiri Utama (BUMA), has been raised by UBS from previous target price at Rp1,940 per share to Rp2,230 per share.  
In UBS Investment Research, published on December 6 2010, the raise of the price target reflects the lower interest expense ahead. "We continue to derive our price target using discounted cash flow methodology. Our operational assumptions are unchanged," said UBS analyst Felicia Tandiyono in her report.
The transfer of 40% stake in Delta Dunia shares on Friday, December 4 2010 was from Northstar Tambang Persada Pte Ltd in Singapore to Northstar Tambang Persada Limited in British Virgin Island (BVI). The shares transfer was done at Rp1,100 per share, based on the approximate 3 month average of the share price.
"We spoke to management which said there has been no change of control in DOID." According to DOID management, the transfer was an internal restructuring and Northstar will save on taxes through a BVI SPV. "The transfer could be a positive catalyst, in our view."
Domestic newspapers have been writing about the possibility of US-based Texas Pacific Group (TPG) and/or Singaporean-based GIC’s interest in Northstar’s stake in DOID. Such event will likely help clarify the ultimate owners of Northstar’s stake in DOID.
"We are of the view that when the consortium of funds decides to exit NTP, the new structure would be more tax efficient. Local newspapers (Bisnis Indonesia) has been reporting a potential sale of Northstar’s stake in
DOID to third-parties such as TPG and/or GIC fund. "We would likely view such sales to third parties positively because it could provide clarity on the ultimate owner of DOID through NTP."
Lower interest expense ahead
DOID is refinancing its 11.75% bond with LIBOR + 4.75% to a 4.90% loan facility. The bond tender offer is expected to close by 27 December 2010. 
It offers a slight premium to the historical average price. "Management is optimistic on obtaining full consent of the current bondholders and so are we." To reflect this refinancing, we raise our EPS forecasts for 2011/2012 from Rp99/Rp121 to Rp128/Rp167.
"Our 2010 EPS forecast is unchanged. We raise our EPS forecasts for 2011/2012 by 30%/38% to reflect the refinancing at a lower rate, assuming LIBOR at 0.3%. We raise our price target by 15% to Rp2,230 to reflect our higher EPS estimates."

Disclosure: No position at the stock mentioned above.

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