Petrosea Double Earning Pockets
Company background
Petrosea (PTRO) is a long established company with over 40 years of vast experience and along the way has built strong recognition as one of the Indonesia’s leading coal mining contractor ranked at 6th place in terms of overburden removal. PTRO claims to be the only local company which provides a complete pit-to port mining solution. The company is 67% owned by Indika Energy (INDY), a listed energy company.
Its mining contract business accounts 88% of its revenue in 2011 with a strong backlog worth USD1.3bn (+76% y-o-y) as per 2011 from variety of known and affiliated clients such as Bayan, Kideco and Santan Batubara. PTRO has also expanded through a 50% equity interest in Santan Batubara coal mine, which is also partly (50%) owned by Harum Energy (HRUM), a coal mining company listed in JCI. Revenue contribution has increased every year reaching 88% in 2011, higher compared to 2008 of only 52%.
Strong overburden removal growth
On 26 March 2012, PTRO signed an agreement with Gunungbayan Pratamacoal, a subsidiary of Bayan Resources (BYAN), to extend its contract to December 2017 (supposed to expire this year) with total value amounting to USD567m, accounting 44% from 2011’s total backlog. It is worth noting that the PTRO’s overburden removal volume has grown 30% CAGR 2008-2011 and plans this year’s overburden removal volume to increase 43% y-o-y to 165m bcm.
As the company plans to add up to 15 fleets this year from 29 in 2011 to 44 this year, while fleet utilization rate for overburden removal is still low at 78% in 2011, achieving 2012 overburden removal target volume is highly visible.
Strong JV synergy with Santan Batubara
PTRO has 2 double earning pockets obtained from Santan Batubara (SB) coal mine (50/50 JV with Harum Energy (HRUM)). It obtains fee from mining contract service for the mine as well as garner gains from investment in the coal mine its self. SB plans to ramp up production to 2.7m tonnes (+59% y-o-y) compared to 1.7m tonnes in 2011. Note that in 2011, PTRO obtained USD11m worth of equity income from its SB investment, which we believe contributes a significant amount to PTRO’s earnings.
Dividend and capex
PTRO plans to distribute 40% dividend payout this year amounting to USD21m, translating to an attractive 4.3% dividend yield 2012. PTRO allocates USD240m for 2012 capex which will mostly be used for fleet expansion purposes. The capex will be financed 30% from bank loan, 30% from parent company Indika Energy (INDY), while the remaining using internal cash.
Valuation
PTRO expects 2012 revenue to increase 25% y-o-y amounting to USD339m. The company has not given any indication of 2012 bottom line, however assuming bottom line to grow the same % as top line, the counter is trading at 7.5x 2012 PER which is relatively cheap in our view.
