Mitrabahtera Segara Sejati Volume To Increase

We believe MBSS should be able to book higher coal volumes in 2013 and 2014 despite expecting clients to renegotiate rates, as long-term customers will bulk up volumes to compensate for lower fees. We trim our DCF-based TP to IDR1,400 and lower our 2013/14 earnings by 5/9%, but maintain a BUY call as it still provides an attractive upside. MBSS, which has contracts with a minimum guaranteed volume clause, offers an attractive 2014 dividend yield of 6%.

Cutting earnings estimates by 5/9% for 2013/14
We trim our 2013 and 2014 earnings estimates by 5% and 9% respectively as 9M13 net profit fell short of our expectation, accounting for 67% of FY13F numbers. Although total coal volume transported in 9M13 reached 57m tonnes (77% of FY13F), Mitrabahtera Segara Sejati (MBSS) charged rates that were lower than we expected.

Thus, we cut our blended fee/tonne assumptions across its segments by 10% and 18% for 2013 and 2014 respectively, as we predict that it would shift to shorter-distance trips and offer competitive or lower rates to customers amidst a challenging coal market. We also raise our aggregate coal volume assumption by 8-19% for 2013-14. MBSS is also servicing short routes for Kideco, which is owned by its shareholder Indika Energy (INDY IJ, NR). Revenue from Kideco reached USD14m (+176% y-o-y) in 9M13.

Sufficient backlog to secure earnings
MBSS’ 9M13 backlog of USD318m should provide a sturdy cushion for 2013 and 2014 revenue. However, there is a potential risk of miners renegotiating for less favorable contracts in 2015. As MBSS serves a fragmented industry, the risk of a downward pressure on its fee/tonne rates is highly imminent. On a positive note, it has a diversified clientele – which reduces its concentration and idle capacity risks.

Cheaply valued, offers premium dividends
With MBSS having a cash pile of USD30m as of 9M13, we are assuming a reasonable 25% dividend payout policy for 2013 earnings, which translates to an attractive 6% dividend yield for 2014. Despite cutting its estimates, the stock is still trading at a very cheap 4x 2013-14 P/E. We maintain a BUY call, but lower our DCF-based TP to IDR1,400 (from IDR1,500) while trimming our earnings estimates for 2013 and 2014.