BREN and TPIA Have the Opportunity to Enter the MSCI Index

ISSUER NEWS – JAKARTA. Shares of PT Barito Pacific Tbk (BRPT) are expected to gain more momentum in 2024. BRPT is likely to get a boost from the potential inclusion of its subsidiary in the MSCI index membership.

For your information, MSCI stands for Morgan Stanley Capital International, which is a stock index launched by the international research institution Morgan Stanley.

Morgan Stanley Capital International (MSCI) will perform rebalancing of the MSCI Index scheduled for February 2024.

Sucor Securities analyst Andreas Yordan Tarigan sees the potential for shares of BRPT's subsidiaries to be included in the MSCI index.

BRPT's subsidiaries, PT Chanda Asri Petrochemical Tbk (TPIA) and PT Barito Renewable Energy Tbk (BREN), are considered to have a good chance of being included in the MSCI index rebalancing.

Andreas explains that this projection is due to TPIA achieving an average free float market capitalization of 3M of US$ 1.7 billion. This is higher than the average of ANTM and INKP of US$0.9 billion and US$1.3 billion.

TPIA also has good stock liquidity with a 3M-ADTV of Rp 172.5 billion, higher than the average of ANTM and INKP of Rp 64.8 billion and Rp 61.7 billion.

BREN is also considered to have the same opportunity to be included in the MSCI index. With a free float assumption of 11.7%, BREN has a free float market capitalization of US$5.7 billion and good stock liquidity with a 3M ADTV of Rp282.7 billion.

On the other hand, Andreas sees the fundamentals of BREN and TPIA strengthening with a series of acquisitions. BREN, with a focus on renewable energy business, will acquire another wind energy company, while TPIA, which focuses on the petrochemical and infrastructure segments, has the potential for even larger acquisitions.

Following the acquisition of Sidrap 1, a 75 MW wind energy asset, BREN has announced plans to acquire four additional wind energy companies with a potential collective capacity of 320 MW.

BREN will hold 100% ownership in Sidrap 1 and 51% ownership in Sidrap 2, Sukabumi Bayu Energy, and Lombok Timur Bayu worth US$17 million.

This strategic acquisition will increase BREN's renewable energy capacity to a total of 1,281 MW, with an effective capacity of 1,124 MW.

“BREN's move further strengthens its position as an industry leader and brings the company closer to its medium-term goal of achieving a large capacity of 2,000 MW,” Andreas revealed in a research dated January 24, 2024.

Meanwhile, TPIA is expected to have more infrastructure acquisitions in the future. As known, EGCO has invested US$194 million or equivalent to 30% of shares in Chandra Daya Investasi (CDI), a special purpose vehicle for infrastructure solutions.

Andreas stated that EGCO's investment makes the total value of CDI US$646 million. CDI will then increase its capacity to 300 MW from the current capacity of 120 MW.

“It should be noted that TPIA currently has a large cash reserve of US$ 2.3 billion which allows it to take advantage of strategic opportunities to acquire assets and transition into an energy infrastructure holding entity,” added Andreas.

The series of acquisition steps is expected to strengthen the fundamentals of BRPT's subsidiaries, especially BREN. This is because the shares of the Barito group are considered to have no growth prospects when prices soared high at the end of last year.

Just so you know, BREN once dominated the stock exchange by surpassing the market capitalization (market cap) of PT Bank Central Asia Tbk (BBCA) on December 8, 2023. However, BREN had just joined the Indonesia Stock Exchange (BEI) about 2 months ago, or precisely on October 9, 2023.

This view was previously also conveyed by JP Morgan, which sees BREN and TPIA shares not commensurate with substantial changes in their growth prospects. Thus, there seems to be no sustainability in the next 12 months.

"We do not see any significant changes in the growth prospects of TPIA and BREN. This will lead to a negative risk/reward for BRPT," revealed JP Morgan Securities Analyst Arnanto Januri in research dated December 12, 2023.

Arnanto predicts that the weak Polyethylene (PE) / Polypropylene (PP) spread will cause a slow recovery in TPIA's financial performance.

The PE/PP spread in 2024 is expected to be below the mid-cycle level at US$ 400 - US$ 420 per ton, driven by capacity additions and high demand.

As a result, the Return on Invested Capital will be in the range of 3%-4% compared to 15%-20% in the period of cycle increase. The Price to book value (PBV) is also 7 times higher compared to peers in the ASEAN region with a book value below 1 time.

Meanwhile, BREN has reached an agreement to acquire 100% of the Sidrap Wind Power Plant (PLTB) with a capacity of 75 Megawatts (MW). However, this action will only generate additional revenue of less than 10% - 2% for BREN.

JP Morgan projects an increase in BREN's compounded annual growth rate (CAGR) capacity of 6% in 2023-2027. This estimate is not in line with an EBITDA profile that is above 100 times.

"We believe the risk/reward on owning the main portfolio, BREN, and TPIA, tends to be downward with EBITDA >100x without any significant changes in growth prospects, so we downgrade BRPT," Arnanto explained.

Considering these factors, Arnanto downgraded BRPT from Neutral to Underweight. However, JP Morgan still maintains its target price for BRPT at Rp 1,100 per share.

If Andreas maintains a Buy recommendation for BRPT shares with a target price of Rp 2,500 per share. This is in line with the potential for a decrease in stock prices that becomes an attractive opportunity.

Andreas explained that the price of BRPT shares has plummeted about 38% since December 2023 due to the negative sentiment of the temporary suspension of trading of PT Petrindo Jaya Kreasi Tbk (CUAN). Although CUAN is also owned by the owner of BPRT, Taipan Prajogo Pangestu, the two businesses are run separately.

The decline in the price of BRPT shares is seen as providing an attractive opportunity for investors because the shares are traded at a 107% discount to the SOTP valuation calculated by Sucor Securities at Rp2,500 per share. Note that SOTP also implies a 163% increase over the SOTP market value.

Meanwhile, Senior Technical Analyst at PT Samuel Sekuritas Indonesia Muhammad Alfatih observes that BRPT has been consolidating in the last 2 weeks. He suggests Trading Sell for BRPT with a target price of Rp 1,060 per share.

Technically, BRPT shares are expected to move in the range of support Rp 1,010 and resistance Rp 1,060 which tends to fall first. If it breaks below Rp 1,010, then next to the area of Rp 900.

“There is no positive momentum for BRPT yet, after the sharp decline previously,” Alfatih told Kontan.co.id, Thursday (25/1).