Medco Energy (MEDC IJ) BUY (Unchanged) 04 May 2018 Results Note Equity Indonesia Mining 280 260 240 220 180 160 140 120 80 Stock Data Target price Prior TP Shareprice Rp1,370 Rp1,370 Rp1,170 Upside/downside (%) +17.1 Sharesoutstanding (m) 17,729 Marketcap. (US$ m) 1,488 Free float (%) 63.3 Avg. 6m dailyt/o (US$ m) 5.3 Price Performance 3M 6M 12M Absolute (%) 10.0 72.6 135.9 Relative to JCI (%) 1.6 75.7 132.2 52w high/low (Rp) 1,170 496 May17 May17 Jun17 Jul17 Jul17 Aug17 Sep17 MEDCRebase Major Shareholders Encore Energy PTE LTD 35.7% Credit suisse Group 20.7% Mitsubishi UFJ 15.0% Estimate Change; Vs. Consensus 2018F 2019F Latest EPS (USD Cents) 1.3 1.4 Vs. Prior EPS (%) Vs. Consensus (%) (13.3) (26.3) Source: Bloomberg Hasan PT Indo Premier Sekuritas hasan@ipc.co.id Sep17 +62 21 5793 1168 Oct17 Nov17 Nov17 Dec17 Jan18 Jan18 Feb18 Mar18 JCI IndexRebase Apr18 Apr18 Blessed by oil price Net profit dropped by 39.6% yoy due to higher tax rate. Improvement on ASP led to margins expansion. Block A Aceh will increase gas production rate in 2H18. Maintain Buy and TP of Rp1,370. Net profit declined by 39.6% yoy in 1Q18. Medco Energi Internasional posted net profit amounted to US$26mn, down 39.6% yoy. Forming only 12.6%/10.9% of ours/consensus FY18 estimates (below expectation). Nevertheless, the company s operating profit of around US$111.9mn (+.7% yoy) is inline with our estimate (achv. 28.5%). The main reason of this negative result mainly resulted by higher tax rate in 1Q18 of around 60.5% which was much higher compared to 1Q17 of some 36.6%. Revenue was recorded increased by 37.4% yoy on the back of higher ASP in 1Q18. On quarterly basis, the company posted solid improvement from a net loss around US$36mn in 4Q17 to net profit US$26mn in 1Q18. Margins expansion from higher ASP in 1Q18. On operational data, the company posted slightly lower production rate in 1Q18, oil and gas production was stood at 88.3 mboepd in 1Q18, down 6% yoy due to lower demand from gas customers. MEDC posted higher ASP with average realized prices were US$63.3/bbl (+22.7%yoy) for oil and US$5.7/mmbtu (+3.6%yoy) for gas. This led the company posted better margins in 1Q18, with gross margin of 52.5% (+2bps) and operating margin of 38.7% (+340bps). Production from MPI in 1Q18 was 593 GWh, 36% above 1Q17 following commercial operation of the Sarulla geothermal development unit I and II in March and October 2017. The third and final unit of the phase one development is expected to reach commercial operation by midmay. Block A will contribute to higher production in 2H18. We believe the company could ramup their production rate in 2H18 as the Block A Aceh will reach its full 58 bbtud by the end of 2Q18. Also, oil price maintain upward trend on the back geopolitical risks from possible new U.S. sanctions againts Iran supported the market albeit U.S production rate almost hit 11mn bpd. Thus, we maintain our production and ASP assumption in 2018/19F. Maintain Buy and TP. At this juncture, we maintain our earnings forecasts for 2018/19F and TP of Rp1,370 as we suspect the company s tax rate will back to normal level in the following quarter. MEDC trades at 7.4x FY18F PE and 6.7 FY19F PE. We reiterate our Buy rating to the counter as our target price offer 17.1% potential upside from the current share price. Risks to our call include: Lower oil price, lower demand and projects delays. Year To 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (US$Mn) 600 926 1,049 1,094 1,133 EBITDA (US$Mn) 273 400 523 543 568 EBITDA Growth (%) 24.4 46.9 30.6 3.8 4.7 Net Profit (US$Mn) 185 132 207 229 255 EPS (US$Cents) 1.0 0.7 1.3 1.4 1.5 EPS Growth (%) (198.2) (28.7) 55.6 10.8 11.5 Net Gearing (%) 198.6 159.5 155.5 117.4 91.7 PER (x) 8.3 11.7 7.4 6.7 6.0 PBV (x) 2.2 1.7 1.2 1.2 1.1 EV/EBITDA (x) 10.5 7.1 5.4 5.2 5.0 Share Price Closing as of : 03May2018
Fig. 1: Gas sales and price trend Fig. 2: Oil price movement 400 5.8 75 3 309 337 5.7 70 300 5.6 65 2 1 144 142 213 5.5 5.4 5.3 60 55 5.2 45 5.1 40 15A 16A 17A 18F 19F Gas sales (mmscfd) Avg gas price (US$/mmscfd) Oil price Fig. 3: Revenue and EBITDA trend Fig. 4: Production volume 90 80 US$mn 1, 70 1,000 60 800 600 40 400 30 20 10 Revenue EBITDA 19F Total production (mboepd) Fig. 5: Margins trend Fig. 6: MEDC s net profit 60.0%.0% 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 15A 16A 17A 18F 19F EBITDA margin Operating margin Net margin US$mn % 40.0 1 30.0 20.0 10.0 () () (10.0) (1) (20.0) () (30.0) (2) (40.0) Net profit Net margin 2
Year To 31 Dec (US$Mn) 2016A 2017A 2018F 2019F 2020F Income Statement Net Revenue 600 926 1,049 1,094 1,133 Cost of Sales (3) (5) (519) (540) (548) Gross Profit 251 421 530 554 585 SG&A Expenses (98) (151) (139) (145) (151) Operating Profit 153 269 392 410 436 Net Interest () (108) (90) (84) (90) OthersNet 208 135 43 56 79 PreTax Income 260 295 343 380 424 Income Tax (63) (140) (138) (153) (170) Net Income 185 132 207 229 255 Balance Sheet Cash & Equivalent 231 661 580 621 561 Receivable 535 635 678 767 857 Inventory 70 89 82 85 86 Other Current Assets 298 590 572 556 540 Total Current Assets 1,134 1,975 1,912 2,029 2,044 Fixed Assets Net 926 1,176 1,082 726 627 Goodwill 0 0 0 0 0 Non Current Assets 499 1,033 1,156 1,174 1,191 Total Assets 3,597 5,161 5,140 4,923 4,859 ST Loans 16 42 42 42 42 Payable 105 140 0 141 143 Other Payables 345 747 174 181 184 Current Portion of LT Loans 395 365 0 2 0 Total Current Liab. 861 1,294 851 614 369 Long Term Loans 1,522 2,182 2,197 2,161 2,125 Other LT Liab. 324 283 688 567 585 Total Liabilities 2,707 3,758 3,735 3,342 3,079 Equity 256 499 499 499 499 Retained Earnings 631 672 760 937 1,136 Minority Interest 3 145 145 145 145 Total SHE + Minority Int. 891 1,316 1,404 1,582 1,780 Total Liabilities & Equity 3,597 5,074 5,140 4,923 4,859 3
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow Net Income (Excl.Extraordinary&Min.Int) 185 132 205 227 253 Depr. & Amortization 263 96 (26) 391 135 Changes in Working Capital (306) 169 (332) (81) (86) Others 2 71 (191) (158) 104 Cash Flow From Operating 157 492 (344) 378 406 Capital Expenditure (86) (879) (3) (53) (52) Others (547) (13) 205 72 74 Cash Flow From Investing (634) (892) 202 19 22 Loans 353 656 149 (286) (285) Equity (1) 194 0 0 0 Dividends 45 (46) (33) (52) (57) Others (166) (28) 345 (279) (147) Cash Flow From Financing 231 776 462 (617) (489) Changes in Cash (245) 375 319 (220) (61) Financial Ratios Gross Margin (%) 41.7 45.5.5.6 51.6 Operating Margin (%) 25.5 29.1 37.2 37.3 38.3 PreTax Margin (%) 43.4 31.9 32.7 34.7 37.4 Net Margin (%) 30.8 14.2 19.6 20.8 22.4 ROA (%) 5.7 3.0 4.0 4.5 5.2 ROE (%) 23.2 11.9 15.1 15.2 15.1 ROIC (%) 7.5 5.0 6.8 7.6 8.5 Acct. Receivables TO (days) 85.6 74.8 74.2 88.5 108.4 Acct. Receivables Other TO (days) 144.2 155.9 154.4 152.7 153.2 Inventory TO (days) 6.3 6.3 6.1 6.5 6.4 Payable TO (days) 95.1 88.4 96.7 93.3 94.4 Acct. Payables Other TO (days) 92.4 99.2 77.9 34.3 34.7 Debt to Equity (%) 217.1 196.7 195.0 155.1 121.8 Interest Coverage Ratio (x) 0.7 0.5 0.4 0.4 0.4 Net Gearing (%) 198.6 159.5 155.5 117.4 91.7 4
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 Indonesia p +62.21.5793.1168 f +62.21.5793.1167 INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12month period HOLD : Expected total return between 10% and 10% within a 12month period SELL : Expected total return of 10% or worse within a 12month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.