Analisa Saham MEDC
$MEDC TP 2500
BCA Sekuritas (SQ)
MEDC: Energizing Horizons Raise TP to 2,500 on MEDC, as earnings keep pumping in 2018F Maintaining our BUY stance on MEDC, while raising our 2018F DCF-based 12M TP to IDR2,500 (+69.5% upside) equivalent to undemanding 2018F PE 9.4x, enhance by the inclusion of 3 major catalysts into our forecast:
1) higher 5Y oil ASP forecast to USD60/bbl in 2018F-2023F as the commodity enters its new ‘price equilibrium’, driven by narrowing global inventory surplus,
2) consolidation of Medco Power Indonesia (MPI) in 4Q17 to enhance MEDC’s profitability, coupled with stronger diversification,
3) steady earnings realization from AMNT & its cost discipline to minimize downside risks from its mining asset which endured a dovish cycle in 2018F-2020F.
Additionally, we believe that MEDC will continue its strong deleveraging commitment in 2018F, (global bonds and proceeds from rights issuance) to strengthen its balance sheet and capital structure (1st phase Warrant: Jun-18).
Hence, we escalate our earnings forecast by +28.1% & 55.8% in 2018F & 2019F, respectively. Risks: unforeseen drop in oil price & issues with MEDC production assets.
Surge in oil price to boost MEDC earnings in 2018F As lingering uncertainty continues to become a wildcard for oil price movement in 2018F (conflicting interests between OPEC & U.S.), we foresee structural price appreciation continuing in 2018F, with Brent oil floor/ceiling cap expected to reach USD60-70/bbl (from USD55-65/bbl in 2017).
This was reinforced by declining trend of OPEC/NOPEC oil production combined with expectations of robust global oil consumption, a phenomenon that would tighten oil supply in the market (Exhibit 2-5).
Note that a bullish oil price positively correlates with MEDC profitability in reference to our sensitivity analysis (+USD1/bbl = +3% revenue and ~50% revenue linked to oil price). Stronger business diversification through MPI consolidation We analyzed MPI consolidation in 4Q17, concluding it would provide an additional USD100mn in EBITDA for MEDC in 2018F (EBITDA margin ~45%), specifically driven by completion of geothermal-powered Sarulla phase III projects (2Q18) which jacked up its IPP installed capacity to 636MW.
We believe that this strategy will amplify MEDC’s future earnings outlook, as well as creating business synergy between the oil & gas sector and its power business, going forward. We estimate MPI revenue will grow by CAGR +10.8% in 2015-2019F, with the expectation of robust electricity demand supported by gov’t efforts to spread electricity penetration across Indonesia. **
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