elnusa: a savvy player in indonesia oil & gas services

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Wednesday, 7 October 2009

EQUITY RESEARCH

OIL & GAS/INITIATING COVERAGE

Lisa Yulianingrum(62-21) 350 9888 ext. [email protected]

BUYBloomberg Code ELSA IJPrice, Rp 360Mkt Cap Rp bn 2,627Target Price, Rp 480

Year end to Dec, Rp bn 2007 2008 2009F 2010F 2011F

Revenues, Rpbn 2,104 2,544 3,059 3,340 3,653EBITDA, Rpbn 247 316 418 490 541Net profit, Rpbn 100 134 618 276 324EPS, Rp 17 19 87 39 45PER, x - 6.2 4.1 9.2 7.8ROE, % 11 8 34 13 13Net gearing, % 40 26 (0) 17 7EV/EBITDA, x - 3.8 6.8 6.7 5.8

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Last Recommendation

Rec. Target Price

07-Oct-09 BUY Rp 480

ELSA relati ve pr ice to JCI Index

ElnusaA Savvy Player in the Oil & Gas Services BusinessA focus on core str engthsEven though the price of crude oil is down from last years average of US$99.7/bbl, Elnusa is sti llwell placed to grow its business given that i t is the dominant local player in the oil & gas servicesbusiness. Evidence is provided by the booking of some US$156mn of new contracts in 2008 andUS$210.8mn in the first half of 2009. In this business, the company enjoys a competi tive advantagethanks to its long track record of providing a full range of services to both the upstream anddownstream segments. Thus, going forward, we are optimistic that the company can grow itsrevenues and, in particular, its recurring incomes. Over the next two years, we expect it s operatingprof its to grow strongly. In FY09, we forecast operating profits to grow a brisk 62% YoY, with 11%YoY growth forecast for FY10. Also encouragingly, the company has reduced it s dependency on

oil and gas giant Pertamina. Note that in FY08, Pertamina accounted for 33.4% of Elnusas totalrevenues. But in FY09F this figure should drop t o only an estimated 22.5%. Recently, the companydivested it s shares in information services provider Infomedia Nusantara for Rp598bn. This meansa stronger cash position in 2009.

Domestic oil & gas activities should remain briskWe believe that domestic oil & gas exploration and production activities should remain brisk inthe near fut ure as the government has set an ambitious target for oil production of around 1,000mbopd. Production volume will come from either existing areas (which will be limit ed since mostassets are mature and face a higher declining rate of production) or at new exploration areas. Suchwill allow Elnusa to sustain it s business since Elnusas upstream services business is int egratedfrom geodata acquisition to oilfield services. These integrated upstream oil & gas services willremain the major contributor to revenues, accounting for an estimated 68.0-69.9% of revenuesin FY09-10F.

The marine segment has good upside potent ialThis business has rosy prospects we believe. Earlier this year, the Indonesian governmentannounced that it would accept bids for 24 new blocks that are mostly located offshore (newonshore locations are few and far between). Seeking to capitalize on the market potential, Elnusaestablished a joint operation for seismic works with Wavefield for Marathons US$38.9mnPasangkayu block last year. Early this year, Elnusa signed other new deals for marine seismicsurveys for the ConocoPhillips Amborip VI block and the Hess Pangkah block that are worthUS$5.6mn in total.

Init iating coverage with a BUY recommendation

We are init iating our coverage on Elnusa with a BUY recommendation. Our target price of Rp480implies a PER of 5.5-12.4x FY09-10F and EV/EBITDA of 9.0-8.5x FY09-10F. We forecast 76.3-14.2% YoYgrowth in core earnings in 2009-10E to Rp241-275bn. Note that our target price is derived byaveraging the figures obtained by using the P/E and DCF methodologies. We take this approachsince we believe it bett er takes into account the near-term earnings potential of the company andthe long-term business cycle.

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130

ELSA (LHS) Relative to JCI Index (RHS) %Rp


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Elnusa7 October 2009Initi ating Coverage

Elnusa has been in the oil & gas services business since 1972 when it s seismic division was

then incorporated. Now the company has three core business divisions. They are integratedupstream services, downstream services and upstream supporting services (see exhibit 11for the company structure). These core businesses accounted for 91.8% of revenues in 2008and we expect them to contribute 92.6% of total revenues in FY09 with the integratedupstream services business alone accounting for some 68.0% of the total revenues.

Exhibit 1. Revenues profi le by business

Source: Company, Danareksa estimates

Exhibit 2. Revenue breakdown in 2008

Source: Company

The prospects for the integrated upstream services business remain bright despit e a declinein t he production rate due to maturing assets. This relates to the efforts being made tomaintain production through t he exploration of new areas (mostly offshore).

An experienced player in oil & gas services

0

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1,500

2,000

2,500

3,000

3,500

4,000

2006 2007 2008 2009E 2010E

(Rpbn) Integrated upstream oil&gas services Asset basedDownstream oil&gas services Upstream oil&gas supporting servicesCompetency-based support services

65.2%

22.5%

4.1%8.2%

Integrated upstreamoil&gas services

Downstream oil&gasservices

Upstream oil&gassupporting services

Competency-basedsupport services


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Elnusa7 October 2009Initiating Coverage

Exhibit 3. Revenues are set to grow

Source: Company, Danareksa Sekuritas

Greater diversification of i ts customer baseElnusa has a close relationship with Pertamina. In FY07-FY08, Elnusas revenues coming fromthe state oil and gas giant reached 26.7% and 33.4% of total revenues. Yet going forward,Elnusa is seeking greater diversification, and for 2009 expects Pertamina to account for only22.5% of its total revenues. We take the view that such diversification is good news sinceit reduces Elnusas exposure to i ts main client, Pertamina, thereby reducing risks.

Exhib it 4. Client breakdown from revenues in 2008

Source: Company

14%

36%

24%

18%

9% 0% 0% Retail customer

PSC

PT Pertamina EP

Private company

PT Pertamina(Persero)GovernmentinstitutionPT Pertamina Gas

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500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009E

0

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600

700

GSC revenue EDS revenueOFS revenue Domest ic oi l product ion

Rp bn mmboThe government hopes oil production can be maintained at 960 mbopd this

year


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Exhibit 5. A more diversified client base


0%

20%

40%

60%

80%

100%

2007 2008 2009E

Others Pertamina

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500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2006 2007 2008 2009E 2010E

Revenue Gross profit EBITRp bnElnusa is an experienced player and

enjoys economies of scale.

Exhibit 6. Revenue, gross profit and EBIT


Exhibit 7. Major contracts awarded in the past 2 years

Company Details Value, US$

2007Marathon Intl Petroleum Indonesia Ltd AS 3D survey works in Pasangkayu, Sulawesi for 9 months 38,825,741

2008PT Pertamina 3D seismic exploration at Rengasdengklok L&O and

East Rengasdengklok, West Java for 614 days 16,437,206PT VICO Indonesia Modular rig 1500 HP services for 3 years 5 months 46,680,000Petrochina Intl Jabung Ltd China 3D & 2D land seismic acquisition for 2 years 19,728,993BP Berau Ltd AS 3D & 2D land seismic acquisition for 1 year 28,389,260Loon Brunei Ltd Brunei Darussalam 3D seismic data acquisit ion for Tutong, Brunei for 8 months 15,361,292PT Chevron Pacific Indonesia Mud engineering services for 1 year 17,930,300

2009BP Berau Ltd AS 3D Western Berau appraisal seismic survey for 1 year 54,046,954PT Total E&P Indonesie Cent ral Tunu 3D t ransit ion zone seismic survey for 1 year 4 months 35,700,457

Source: Company


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Exhibit 8. Elnusas main customers

Source: Company

Elnusa has built up a strong customer base over the years.


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Elnusa believes that the offshore market is very prospective. In this regard, the company

has earmarked significant funds to support it s growth plans. Most of the capex shall be usedto purchase new marine equipment and to replace drill ing and services equipment.

Capex in FY09-10F is estimated at Rp115-369bn, most of which is for the int egrated upstreambusiness.

Exhibit 9. Capex


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600

2007 2008 2009E 2010E

Rp bn

Pursuing offshore opportunities


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Valuation

Applying an 8.3x multiple to our estimated 2010 earnings gives a value of Rp323 per share.

If we use the discount ed cash-flow model, using a WACC of 16.6%, we arrive at a value ofRp644 per share. Averaging the two figures, and we arrive at a target price of Rp480, or 33.3%upside from the current share price.

Exhibit 10. Valuation

2010F 2011F 2012F 2013F 2014F 2015FFCFF calculation(Rpbn)

Op. income *(1-t) 227 253 261 268 276 285+ Non cash addition 165 180 185 190 196 202NOPAT 392 433 446 459 472 486

Working capital adjustment (164) (99) (29) (33) (25) (32)Capex (369) (207) (221) (236) (253) (271)FCFF (140) 127 196 189 194 184Terminal value 468

Discounted FCFF (163) 172 311 350 419 462Discounted terminal 3,441Enterprise value 4,991Debt 2010F (619)Cash 2010F 266Equity value 4,632No of shares (bn) 7Equity per share (Rp) 644

Source: Danareksa Sekuritas


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Exhibit 11. Company structure

Segment Company name Shares, %

Integrated upstream oil&gas services PT Elnusa Geosains (GSC) 100

PT Elnusa Drilling Services (EDS) 100PT Oilfield Services (OFS) 100

Asset based Elnusa Bangkanai Energy, Ltd (EBE) 100Elnusa Tristar Ramba, Ltd (ETR) 25.0

Downstream oil&gas services PT Elnusa Petrofin (EPN) 99.8PT Elnusa Patra Retail (EPR) 98.0

Upst ream oil&gas support ing services PT Purna Bina Nusantara (PBN) 84.5PT Jabar Energi (JBE) 49.0

Competency-based support services PT Patra Nusa Data (PND) 70.0PT Sigma Cipta Utama (SCU) 99.9PT Patra Telekomunikasi Indonesia 40.0

Source: Company

Company structure


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Financial statements

Exhibit 12. Prof it and loss (Rpbn)

2007A 2008A 2009E 2010E 2011E

Revenues 2,104 2,544 3,059 3,340 3,653Cost of operating revenues 1,705 2,149 2,517 2,743 2,994Gross profit 399 395 542 597 659

Operating income 144 180 293 325 362EBITDA 247 316 418 490 541

Financing cost (42) (59) (44) (31) (30)Gain (loss) on forex (7) (31) 8 (12) 11Interest income 2 12 12 12 12Others - net 7 12 487 14 15Total other income (charges) (52) (70) 464 (17) 9Income tax (38) (34) (195) (88) (103)

Net profit 100 134 618 276 324Core profit 99 136 241 275 304

Source: Company and Danareksa Sekuritas

Exhibit 13. Balance sheet (Rpbn)

2007A 2008A 2009E 2010E 2011ECurr ent AssetsCash & cash equivalent 107 401 625 266 440Trade receivables - net 635 793 953 1,041 1,138Inventories 48 75 110 120 131Others 205 353 408 432 458Total Current Assets 994 1,622 2,097 1,859 2,167

Non Curr ent AssetsDue from related parties 25 28 48 53 59Investment in shares of stock - net 164 199 39 34 34Property, plant and equipment - net 739 1,213 1,203 1,407 1,434Others 238 256 269 298 317Total Non Current Assets 1,165 1,696 1,558 1,792 1,843

Total Assets 2,159 3,318 3,654 3,651 4,011

Current LiabilitiesShort term loans 299 351 21 21 -Trade payables 218 302 363 396 433Current maturities of LT debt 107 104 256 16 16Others 294 406 539 463 482Total Current Liabilit ies 918 1,163 1,178 896 931

Non Current Liabilit iesDue to related parties 45 20 20 20 20

Long term debt 186 462 595 598 598Others 47 41 41 41 42Total Non Current Liabilit ies 277 522 656 658 659

Minority 15 18 18 18 18

EquityIssued and paid-in capital 584 730 720 720 720Additional paid-in capital - 420 - - 1Others 264 2 2 2 2Retained earning 101 477 1,095 1,372 1,696Total Equity 949 1,629 1,817 2,093 2,418

Treasury stock at cost - (15) (15) (15) (16)

Total Liabilit ies and Equities 2,159 3,318 3,654 3,651 4,011



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Exhibit 14. Cash flow (Rpbn)

2007A 2008A 2009E 2010E 2011E

Cash Flow From Operating Activit iesNet income 100 134 618 276 324Depreciation 103 136 126 165 180Gain (losses) from forex 7 31 - - -Minority interest 3 6 - - -Working capital adjustment (62) (91) (396) (183) (107)Net Operating Cash Flow (142) 38 348 258 397

Cash Flow From Investing Acti vit iesAcquisition of property and equipment (157) (578) (115) (369) (207)Addition of investment in shares of stock - (5) 156 - (4)Others 30 31 (19) (11) (12)Net Investing Cash Flow (127) (552) 21 (379) (223)

Cash Flow From Financing Activit iesProceeds from bank loans 39 436 9 - -Payments of bank loans (25) (193) (88) 285 (237)Payments of finance lease obligations (2) (11) (35) - -Payment for treasury stock - - 146 (420) -Others 206 575 (177) (102) 238Net Financing Cash Flow 219 807 (145) (237) 1

Net Changes (50) 294 224 (359) 175Beginning Balance 157 107 401 625 266Ending Balance 107 401 625 266 440


Exhibit 15. Quarterly breakdown (Rp bn)

2Q08 3Q08 4Q08 1Q09 2Q09

Revenue 705 944 1,600 698 916Gross profit 109 252 395 138 160Operating profit 49 99 180 96 92EBITDAFinancing cost (17) (50) (59) (20) (23)Net income 96 102 134 40 425

Cash & cash equivalent 176 387 401 454 84Current maturities of LT debt 4 90 104 158 45LT debt - net of current maturities 43 301 462 609 (16)Equity 76 1,597 1,614 1,654 399



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Exhibit 16. Selected ratios

2007A 2008A 2009E 2010E 2011E

Gross margin, % 19.0 15.5 17.7 17.9 18.0Operating margin, % 6.9 7.1 9.6 9.7 9.9EBITDA margin, % 11.7 12.4 13.7 14.7 14.8EBIT margin, % 6.9 7.1 9.6 9.7 9.9Net profit margin, % 4.8 5.3 20.2 8.3 8.9

ROE, % 4.6 4.0 16.9 7.6 8.1ROA, % 10.5 8.3 34.3 13.3 13.5

Debt to Equity, x 51.0 50.4 34.2 29.8 24.9Net Debt to Equity, x 39.8 25.5 (0.5) 17.0 6.5Times Interest Ratio, x 3.4 3.1 6.7 10.5 12.1

Cash Ratio, x 0.1 0.3 0.5 0.3 0.5Quick Ratio, x 0.2 0.4 0.6 0.4 0.6Current Ratio, x 1.1 1.4 1.8 2.1 2.3

EPS, Rp 17.1 18.8 86.7 38.8 45.4DPS, Rp - 2.7 3.6 4.1 4.6

P/E,x - 6.2 4.1 9.2 7.8P/BV,x - 0.5 1.4 1.2 1.1Dividend Yield, % - 2.3 1.0 1.2 1.3



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DISCLAIMERThe information contained in t his report has been taken from sources which we deem reliable. However, none of P.T. Danareksa Sekuritas and/or i ts affil iated companies and/ortheir respective employees and/or agents makes any representation or warranty (express or impli ed) or accepts any responsibil ity or li abilit y as to, or in relat ion t o, the accuracy orcompleteness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remainingunchanged after the issue thereof.We expressly di sclaim any responsibili ty or li abilit y (express or implied) of P.T. Danareksa Sekuritas, its affi liated companies and their respective employees and agents what soeverand howsoever arising (including, wit hout limitation f or any claims, proceedings, action , suits, losses, expenses, damages or costs) which may be brought against or suffered byany person as a result s of acting in reliance upon the whole or any part of the contents of t his report and neither P.T. Danareksa Sekuritas, its affiliated companies or their respectiveemployees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracytherein or omission therefrom which might otherwise arise is hereby expresses disclaimed.The information cont ained in this report is not be t aken as any recommendation made by P.T. Danareksa Sekuritas or any other person to enter into any agreement with regard toany investment ment ioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. Inconsidering any investments you should make your own independent assessment and seek your own professional f inancial and legal advice.

elnusa: a savvy player in indonesia oil & gas services

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