Prospects and Recommendations for BUMI Shares with Quasi Reorganization

JAKARTA, LISTED COMPANY - PT Bumi Resources Tbk, a Bakrie coal mining company, is seeking to improve its financial balance sheet by eliminating accumulated deficit balances through a quasi-reorganization. With a healthy profit balance, the company could resume dividend distribution.

BUMI's management stated that the quasi-reorganization plan aims to provide a true picture of the current financial position. They are confident in maintaining the company's sustainability and continued growth in the future.

"The company is expected to continue its operations more effectively (fresh start) with its current financial position and without the burden of past deficits," BUMI's management announced in its official statement published in the KONTAN Daily Edition on Tuesday (23/4/2024).

The deficit balance in BUMI's financial report has been ongoing since 2012. BUMI's management explained that they started having a negative position on retained earnings in 2012, amounting to US$ 433 million, caused by a loss for the year of US$ 666.2 million and a cash dividend distribution of US$ 33.9 million.

The significant transactions that caused the loss for the year in 2012 were interest expenses of US$ 620.5 million related to loans and losses on derivative transactions amounting to US$ 344.9 million.

Over time, the position of retained earnings continued to decline, reaching its lowest point in 2015, amounting to US$ 3.3 billion, as BUMI suffered a loss during that period. This was further exacerbated by interest expenses, which were the dominant factor causing the loss.

Other factors also affected BUMI's earnings, such as non-cash transactions in the form of impairment of several assets, losses on derivative transactions, and book losses on the sale of subsidiaries.

 

BUMI's management has been addressing this situation by implementing various strategies, including preparing a PKPU restructuring structure, strict cash flow management, and an efficiency program.

Finally, in 2016, BUMI began to record a positive position for the year's profit. Except in 2020, they proved a loss due to interest expenses on the Bankruptcy and Postponement of Debt Payment Obligation (PKPU) debt, which was then paid off in October 2022.

The positive position for the year's profit from 2016 to 2022, totaling more than US$ 1 billion, moved the position of retained earnings from minus US$ 3.35 billion in 2016 to minus US$ 2.35 billion in 2023.

With the repayment of the PKPU debt in October 2022, interest expenses, which were the largest position affecting earnings, will no longer be a burden in the future.

In addition, BUMI expects the relatively high coal prices to improve business prospects in the future and maintain BUMI's positive retained earnings position.

"So the company has the ability, subject to shareholder approval, to distribute dividends to shareholders," said BUMI's management.

BUMI's management has prepared a quasi-reorganization agenda, which is to improve the equity structure by eliminating accumulated losses (deficits) using the balance of share premium, which is the excess difference between capital deposits and the nominal value of shares.

Without a deficit balance, BUMI can have a positive impact on shareholders as it can distribute dividends in accordance with applicable regulations. This will increase interest and attractiveness for investors to own BUMI shares.

With a financial position unburdened by past deficits, BUMI is expected to more easily obtain funding for business development.

Through this action, BUMI's management also hopes to increase stock trading liquidity and investment value for investors.

The decision on the quasi-reorganization plan will be discussed in the Extraordinary General Meeting of Shareholders (EGMS) to seek shareholder approval on Thursday (30/5/2024).

 

BUMI's Business Prospects and Recommendations

BUMI's management is confident that the coal industry will continue to grow in the future, so they are optimistic that the demand for this black stone will continue to increase in the next 5-10 years. This is due to the limited ability of renewable energy to replace coal.

"This factor is believed to keep coal prices high for the medium term," said Management.

In 2024, the coal price is also expected by this Bakrie Group company to be quite good due to the global energy balance still requiring coal as an alternative energy source.

BUMI, through its subsidiaries engaged in coal production, namely PT Kaltim Prima Coal and PT Arutmin Indonesia, has a total coal reserve of the Joint Ore Reserve Committee (JORC) of more than 1,000 million tons and coal resources of more than 6,000 million tons. Both companies also have a total coal production capacity of 90 million tons per year.

With the assumption that coal prices are more or less the same as current coal prices, BUMI's revenue is expected to remain high in the future.

In line with the increasingly fiery revenue, BUMI's management is confident that the repayment of the PKPU debt means it no longer has large interest expenses. In addition, BUMI will also consistently reduce operational costs through ongoing efficiency programs and implement digitization.

Unfortunately, despite the polished financial report and the claimed promising business prospects, BUMI's shares are not yet attractive enough.

Avere Investama's Director, Teguh Hidayat, stated that BUMI still has a lot of debt, so after the quasi-reorganization, the company has a task to improve its debt first.

"So the process is still long before the prospects become good," he told KONTAN on Tuesday (23/4).

 

As of December 31, 2023, BUMI's total liabilities reached US$ 1.43 billion. Most of it, namely US$ 848.17 million, is short-term liabilities.

Citing Teguh's analysis, what needs to be the focus of shareholders is not the quasi-reorganization, but what activities will be carried out by the company post-quasi. Whether they will really expand, or just stay still. Because the implementation of quasi itself actually has no impact on the company's fundamentals, except only providing a 'fresh restart'.

However, the market seems to welcome BUMI's plan to hold a quasi-reorganization. At the close of trading today, BUMI's share price soared 21.18% to Rp 103 per share.