DBS (DP) 6 Agt 2018
MEDC BUY TP 1500
Solid core profit, undemanding valuation
2Q18 core performance largely in line with our expectation
Bottom-line affected by higher tax rate
Strong O&G lifting in 2H18 to boost core earnings
Maintain BUY with lower TP of Rp1,500
Maintain BUY with new TP of Rp1,500. 2Q18 EBITDA came in at US$153m (+66.4% y-o-y, +3.6% q-o-q), on track to meet our estimate for Medco Power Indonesia’s (MPI) contribution post consolidation in 4Q17. A higher ASP for both oil and gas bodes well for MEDC’s core oil and gas lifting business. But a higher-than-expected effective tax rate in 2Q18 and losses in associates contribution related to Amman Mineral (AMNT) phase 7 transition have led to a net profit of US$19.8m (-46.4% y-o-y, -8.4% q-o-q). We cut our FY18/19 earnings by 40%/17% for 1) financing cost adjustment, 2) higher effective 2018 tax rate, and 3) lower AMNT-related income from associates.
Where we differ: Higher gas lifting vs. oil means less earnings volatility – further catalyst for share price re-rating. Besides the higher core earnings visibility, we think that MEDC remains very much under-appreciated by the market. Its current valuation is undemanding, trading at single-digit FY18F PE, which largely undervalues its profitable power business that generates EBITDA of US$100m p.a., and further earnings upside from its mining division that has now entered phase 7 development.
Key catalysts: Completion of a series of corporate actions. MEDC is set to achieve higher oil and gas lifting activities in 2H18 – its guidance is maintained at 85m barrels of oil equivalent per day (MBOEPD) for this year.
Valuation:
Maintain BUY rating with new TP of Rp1,500. We have a BUY call with a DCF-based target price of Rp1,500, which implies 6.7x FY19F EV/EBITDA and 8.3x FY19F PE. Our DCF valuation assumes a WACC of 9.4% and terminal growth rate of 0%.
Komentar
Posting Komentar