Mitrabahtera Segara Sejati, Deserve A Re-rating

Mitrabahtera Segara Sejati’s (MBSS) share price has gone up and the stock has outperformed the JCI and is the best outperformer against the coal supporting industry and the coal mining industry relative to the JCI stretching back for the past one year. Following the positive reaction to the market over the last couple of weeks, we believe the rally does not stop here given: 1.) Undemanding multiples at 5.1 and 4.4x 2013-14 PER, a strong discount to the coal mining and coal supporting sector respectively, 2.) Proven defensive nature against the coal downturn is a testament for a re-rating.

Double digit earnings growth for 2013-14
We expect the 2012 financial results to reach our expectation given 9M12 relatively in line results, before booking a double digit earnings growth for 2013-14. We expect 2013 top line 12% y-o-y mainly spurred by MBSS’ floating crane and 3 barging sets which was purchased in 4Q12 to be fully reflected in FY13. Just to flashback, MBSS 9M12 net profit amounted to USD26m (+22.6% y-o-y), in line in our view, accounting for 69% of our FY12 figure. However, several adjustments are made in our earnings.

Deserving its re-rating
MBSS deserve a re-rating given strong diversified customers with long-term contracts ranging from 1-8 years (more than 95% of revenue are tied to long-term contracts) and minimum guaranteed volumes in contracts, indicating low execution and severe downturn risk leaving more weighing to potential upside risk from positive surprises in the coal mining sector. It is worth noting that our Indonesia coal coverage production growth remains to persist in 2013, putting a positive vibe to MBSS.

Valuation is cheap
MBSS’ undemanding multiple at 5.1x and 4.5x 2013-14 PER with 2013 PEG pegged at 0.3x we consider cheap and the stock deserves a smaller discount gap to the coal mining and support coal companies. Note that MBSS is currently trading at a 56% and 55% discount to the coal mining sector and a 66% and 63% discount to the coal supporting sector. We lower our target price to IDR1,500 as we downward our earnings revision, yet a BUY call still remains solid.