Investors should remain cautious in trading shares of Bumi Resources and other Bakrie-related companies even as valuations drop, on concern that mounting debt can always trigger another stock price decline, extending losses of the past few weeks, some analysts say.
Bumi Resources has fallen 22 percent in the past two weeks and traded last week at the lowest since March 2009. Before that the stock had been declining as its debt rating was lowered by Moody’s Investors Service and Standard & Poor’s Rating Agency. Both had cut Bumi’s rating on concern that its declining revenue from coal sales and increasing production cost will affect its ability to pay debt. Two weeks ago it posted a first-half net loss on higher operating costs
So far this year shares of Bumi, the biggest coal producer in Indonesia by volume, have lost 66 percent to close on Friday at Rp 730 per share, making it the second-biggest loser among 449 listed companies on the Indonesia Stock Exchange (IDX) and underperforming the mining index’s 25 percent decline, according to Bloomberg data.
Being down so much this year may make the stock a bargain for some investors, but analysts warn that cheap valuation should not be the only consideration.
“I prefer to enter when Bumi hits below Rp 600 per share,” said Edwin Sebayan, head of research at MNC Securities in Jakarta. “We are still having a pessimistic view on the stock’s valuation with Rp 520 as the target price [this year],” he said.
Edwin set Rp 740 for Bumi as an optimistic price target. Bloomberg data show that Bumi’s estimated price-to-earnings ratio is 9.5 for this year. By comparison the benchmark Jakarta Composite Index has a multiple of 15.
Edwin said Bumi’s financial condition is still far from safe for investors to bet on the company. According to Edwin, with the $334 million net loss in the first half, compared to $227 million profit on the same period last year, its debt-to-equity ratio has risen, to 8.9.
The company’s cash position at $121.85 million is too small when the company, according to his calculation, has about Rp 3.1 trillion ($323 million) in principal payments on its debt maturing this year, and the company may not have enough money to even make payments on interest alone.
Media have recently reported that the company might sell its 50 percent stake in an unlisted coal mine for $200 million. Bumi director Dileep Srivastava has refused to comment on that except saying that “we are committed to monetizing assets at a profit to settle debt.”
Last year, the company canceled its plan to sell a stake in Bumi Resources Minerals, its non-coal subsidiary, citing low valuation. In the past 12 months that stock has fallen 33 percent.
Parent company Bumi is planning on paying the remaining $1.3 billion of its debt to China Investment Corporation in the next two years to reduce its debt and interest expenses.
“We believe our first-half financials have been misread by the uninitiated aggravated by some mischievous reporting,” Srivastava said.
Meanwhile, big debt is also undermining investment in other Bakrie-related companies.
Ruben Sukatendel, who helps manage Rp 6 trillion in assets at BNI Asset Management, said that the large debt in the group is certainly a turn-off for him, especially long term.
“Bakrie group stocks are not in our investment choices for the long run except if the company can come up with a solution to settle their debts,” Ruben said.
“Maybe for short-term trading. Stocks in this group are already very cheap, and it could be the time to buy if you use a hit-and-run strategy,” he added, referring to a quick “buy low and sell high” trading method.
Among other listed stocks, Bakrie Telecom has lost 50 percent. Bakrie Telecom paid off its Rp 650 billion debt on Tuesday, the due date instead of the day before as the company promised earlier. The IDX had suspended trading on Bakrie Telecom’s stock for a day on Tuesday because of the delayed payment.
Energi Mega Persada, an oil company, dropped 51 percent, putting its estimated price-to-earnings ratio at 9.1, according to data on Bloomberg, which had no forecasts for Bakrie Telecom and Bumi Resources Minerals.
Shares of Bakrie & Brothers, the holding company for the companies listed on the IDX, has been trading at a low of Rp 50 since February.