Mitrabahtera Segara Sejati, Proven To Endure a Bearish Market

MBSS has proven to be a solid player in supporting the coal industry, as it has withstood the shocks of a bearish coal market. For this year, we expect its earnings to continue growing by 15% y-o-y. We maintain our BUY call with a five-year DCF-based TP of IDR1,500, implying a 6x 2013 P/E and assuming a 13% WACC and 3% long-term growth rate.

A resilient player
Mitrabahtera Segara Sejati (MBSS)’s defensiveness against a bearish coal market is warranted given the following: i) about 95% of its revenue comes from long-term contracts, ii) about 80% of the contracts are based on freight rates that are charged by the ton and with a minimum guaranteed volume, iii) it has a diversified customer base, as it has working relationships with most of the large Indonesian coal producers, and iv) its operations are in healthy shape, as seen by the ~90% utilization rate of its vessels.

Healthy backlog
Thanks to its backlog of USD406m at end-2012, MBSS’ earnings are sustainable for at least the next two years. Two barges commenced operations in 4Q12, while one barge and one floating crane (Vittoria) began running in January – which will support its estimated 15% y-o-y earnings growth in FY13.

Upside risk
With strong backup from its major shareholder Indika Energy (a 51% stakeholder), MBSS’ fleet expanded to 74 barging sets (+12% y-o-y) and seven floating cranes (+40% y-o-y) in 2012. Its capex growth hit the brakes this year, as we would like to watch and see further potential contracts.

The company has the potential to be awarded a new tender this year given its synergies, excellent services and strong reputation it has built with leading well-known coal players. If the new tender is obtained, a fleet expansion using up its capex allocation is highly imminent. We see MBSS as being undervalued, which leaves only an upside risk for the stock.

Value play
MBSS is currently trading at 5x 2013-2014 P/E and offers a dividend yield of 5%-6% for 2013-2014. We maintain our BUY call with a five-year DCF-based target price of IDR1,500, implying a 6x 2013 P/E using a 13% WACC assumption and 3% long-term growth rate.