Results Review

Indonesia
Shipping

26 May 2020

BUY PT Buana Lintas Lautan Tbk

TP: IDR389 BULL IJ
78.5%

In A Sweet Spot to Ride on Tailwind

FY19 Revenue grew 18.8% YoY to US$101.2m, while EBITDA jumped 24.4%
YoY to US$54.4m due to addition of 8 large tankers which garner higher REPORT AUTHORS
margins. Management issued positive guidance note in view of recent market
catalyst and bigger fleet size. Expects both top and bottom line to at least Soh Lin Sin
double this year. Current share price translates to 1.8x FY20E P/E and 3.2x +65 6671 8117
linsin.soh@sccmasia.com
FY20E EV/EBITDA. Reiterate BUY with a higher TP of IDR389/shr.
 Delivered a solid set of results as promised: FY19 top line grew 18.8% YoY to
US$101.2m on the back of an expanded fleet size (8 new vessels to a total of 25
vessels). Boosted by higher margins, EBITDA and Attributable Net Profit jumped
24.4% and 55.4% YoY to US$54.4m and US$21.0m, respectively. FY19 revenue met
98.9% of our forecast, but EBITDA missed on higher than expected operating
expenses. Nonetheless, we saw EBITDA margin expansion of 2.4p.p. YoY to 53.6% on PRICE CLOSE (20 May 2020)
higher contribution from larger tankers. IDR 218
 Additional growth engines coupled with favorable backdrop set stage for strong MARKET CAP
FY20E: The oil tanker market is one of few segments of the oil industry that enjoyed IDR 2.58 tn
positive momentum amid a depressed oil price and a slump in global oil demand. USD 173 mln
Tanker spot rates spiked arising from (i) strong shipping demand due to the sudden SHARES O/S
flood of low-priced oil into the market, and subsequently (ii) high storage demand on 11,815 mln
largest-ever crude glut.
FREE FLOAT
As we have been repeatedly highlighted, BULL has a strong balance sheet that 53.46%
enables it to scale up fast and ride on this tailwind. BULL’s expansion plan for FY20,
3M AVG DAILY VALUE
with targeted 13 new tankers, is on track. As of early May, BULL has added 6 new
IDR 10.6 bn / USD 0.717 mln
large vessels to its fleet, and is expecting 2 more by end May. 6 of these new vessels
will be catering to the demand from international market. 52 WK HIGH 52 WK LOW
IDR 252 IDR 111
 Undemanding valuation: Currently trading at FY20E 2.2x P/E, 0.49x P/B and 2.5x
EV/EBITDA. BULL issued a positive guidance note, projecting FY20E EBITDA to be 2.25
– 2.50x of FY19’ US$54.4m; while FY20E Net Income (ex. extraordinary items) to be
3.50 – 4.00x of FY19’s US$23.3m. Given the stronger than expected international Target Price IDR389
market, we revised our financial performance projections upward. Reiterate BUY
Vol (m)
with a higher TP of IDR389/shr. Price (IDR)
250 250

Financial highlights 200 200

150 150
Y/E 31 Dec (USD'm) FY19A FY20E FY21E FY22E FY23E
100 100
Revenue 101.5 213.5 239.6 259.8 266.6
50 50
Revenue Growth 18.8% 110.5% 12.2% 8.4% 2.6%
0 0
Attributable Net profit 21.0 77.8 68.1 79.7 83.2 20/5/2018 20/5/2019 20/5/2020

Weighted Avg. Shares (m) 9,240 11,365 11,365 11,365 11,365

EPS (US$'c) 0.23 0.68 0.60 0.70 0.73
EPS growth (%) 2% 201% -12% 17% 4%
ROE (%) 7.8% 22.5% 16.4% 16.1% 14.4%
Net Debt to Equity (x) 0.8 1.0 0.7 0.5 0.2
P/E (x) 4.7 2.2 2.5 2.1 2.0
Source: Company, SCCM Research; Prices as of 20 May 2020

This report has been prepared by SooChow CSSD Capital Markets (Asia) Pte. Ltd. or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section
at the end of this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
BUY PT Buana Lintas Lautan Results Review
Indonesia
TP: IDR389 Tbk Shipping
78.5% BULL IJ

Operation Review
A Bright Spot Amid COVID-19

 We expect TCE (Time Charter Equivalent) rate for larger ships to remain strong
throughout FY20E, underpinned by tight supply-demand dynamics. Even with
OPEC+ cuts and potential production shut-in, the supply surplus is still likely to
be around 10m bpd. An increase in floating storage is inevitable as the world’s
conventional onshore storage facilities run out of space.

 Meanwhile, the current order book of new tankers is the lowest in more than
20 years. The introduction of 3 new regulations will further limit the supply of
tankers. Namely, (1) IMO 2020 low sulfur fuel requirement in 2020; (2)
mandatory water ballast treatment systems during 2021-2023, and (3)
reduction in greenhouse gas emissions of 30% by 2025.

Fig 1 - 5-Year Historical TCE Rates for Aframax, with average of ~US$20,000/day
Afra TCE Rates (USD/day)

35,000

30,000
5-yr average: $20,319/day
25,000 +0.5sd

20,000
-0.5sd
15,000

10,000

5,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Bloomberg, SCCM Research

Fig 2 - 5-Year Historical TCE Rates for VLCC, with average of ~US$35,000/day

VLCC TCE Rates (USD/day)

90,000
80,000
70,000
60,000
50,000 5-yr average: $35,180/day
40,000 +0.5sd

30,000 -0.5sd
20,000
10,000
0
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Bloomberg, SCCM Research
BUY PT Buana Lintas Lautan Results Review
Indonesia
TP: IDR389 Tbk Shipping
78.5% BULL IJ

 Flexing its financial muscle and reaping benefits from current favorable
market conditions: In addition to a robust international market, on the home
front, Pertamina is targeting to store 20-30m bbl at sea, which translates to an
additional demand of ~30 vessels.

BULL’s (a) strong cash-generating business (FY19 net operating cash flows of Our model assumes 13 large
US$41m); and (b) debt headroom of US$160m (based on internal 1.25x gearing tankers (mix of VLCC, MGC, Afra
ceiling) allow it to grow its fleet and tap on to these opportunities. Higher TCE and MR) are added to BULL’s fleet
rate will help to shorten its breakeven period for each asset and accelerate on in FY20E
its deleveraging process.

 Looking to improve its finance costs: Despite in a low interest rate

environment, BULL’s interest rate from its bank loans range around 9-13%.
While we are not overly concerned as BULL’s interest coverage ratio stood at
3.4x, we view its interest to tap onto the bond market as positive. This signals
BULL’s commitment to expand its investor base, lower financing costs with a
more cost-effective capital structure, as well as to enhance information
transparency. This will also help BULL to refinance its bank loans with lower
interest rates.

 Reiterate BUY with a higher TP of IDR389/shr: We continue to favor BULL as it

is the largest yet fastest-growing company with prudent fleet expansion
strategy. Having a well-balanced strategy of contracts enables BULL to
participate on the upside while capping on the downside.

DCF Valuation Methodology

 We have updated our revenue and margin expectations for FY20E and onward
based on current market conditions. We have also adjusted our WACC assumptions
to reflect latest market rates. Our newly derived TP of IDR389 implied FY20E 3.9x
P/E and 0.87x P/B, with a potential upside of 78.5%.
Fig 3 - DCF summary and assumptions
DCF Summary WACC assumptions
Cumulative PV of FCF 177 Debt-to-Capital 49.8%
Perpetuity Growth Rate 1% Cost of Debt 12.0%
PV of Terminal Value 469 Tax Rate 1.2%

Enterprise Value 647 After-tax Cost of Debt 11.9%

Less: Net cash (319) Risk-free Rate 1.8%
Less: Tax liabilities (4) Inflation Differential 2.3%
Less: Non-controlling Interest (23) Market Risk Premium 7.2%
Implied Equity Value 301 Levered Beta 1.27
Shares Outstanding (m) 11,365 Country Risk Premium 3.5%
Implied Share Value (USD) 0.0265 Cost of Equity 16.7%
Implied Share Value (IDR) 389 WACC 14.3%
BUY PT Buana Lintas Lautan Results Review
Indonesia
TP: IDR389 Tbk Shipping
78.5% BULL IJ

Scenario Analysis

 We have conducted a scenario analysis to estimate BULL’s TP based on different

average TCE rates. Out of the 13 new vessels, BULL has received 8 tankers by end
May-20, and is expected to receive the remaining 5 vessels over 2H20 period. The 8
tankers are likely to have benefited from the TCE rate spike.

(a) Base case: 2H20 TCE rates to sustain at YTD average, and normalize in FY21E
and onwards.

(b) Bull case: 2H20 TCE rates to reach higher level as storage demand
persists/increases, and subsequently normalize in FY21E and onwards.

(c) Bear case: 2H20 TCE rates to normalize as recovery in oil consumption come in
earlier and stronger than expected, offsetting the high 1H20 rates.

Fig 4 - YTD 2020 average Aframax tanker rate in the international market +123%
YoY and 1.6x higher than Indonesia market’s rate

Aframax Tanker TCE Earnings (USD per day)

2019 YTD 2020

2011-2019 Range Average Average Mid May 2020

US$30,000-42,500
Domestic US$16,000-18,000 US$17,250
For 6 to 12-month short-term contracts

International US$13,000-27,000 US$19,840 US$44,153* US$52,250

Source: Company

Fig 5 - Base Case: DCF-derived TP of IDR389/shr

Scenario Variables FY19A FY20E FY21E FY22E FY23E
Number of vessels 17 25 38 43 46
Avg Annual TCE Rate (USD/day): Domestic 26,229 16,875 16,375 16,375
Avg Annual TCE Rate (USD/day): International 32,940 25,000 25,000 25,000
Base
EBITDA (USD’m) 54.4 150.605 161.9 173.6 174.7
Case
Net Income Attributable to Shareholders (USD’m) 21.0 77.8 68.1 79.7 83.2
Implied Price per Share (IDR) 389
Bull Avg Annual TCE Rate (USD/day): Domestic 29,229 19,875 19,375 19,375
Case Avg Annual TCE Rate (USD/day): International 42,940 30,000 30,000 30,000
EBITDA (USD’m) 54.4 171.6 181.9 193.7 194.9
Net Income Attributable to Shareholders (USD’m) 21.0 96.4 85.9 97.7 101.1
Implied Price per Share (IDR) 573
Bear Avg Annual TCE Rate (USD/day): Domestic 16,229 16,875 16,375 16,375
Case Avg Annual TCE Rate (USD/day): International 27,940 20,000 20,000 20,000
EBITDA (USD’m) 54.4 126.3 150.0 161.7 162.6
Net Income Attributable to Shareholders (USD’m) 21.0 56.2 57.5 69.1 72.4
Implied Price per Share (IDR) 264
* Using Exchange Rate of US$1 = IDR 14,7000
BUY PT Buana Lintas Lautan Results Review
Indonesia
TP: IDR389 Tbk Shipping
78.5% BULL IJ

Appendix: Financial Statements

 We are cognizant that the extraordinary high daily TCE rate at US$60,000-80,000 in
early FY20E is unsustainable in long-term as oil consumption demand recovers.

 Under our Base Case, we expect a normalized TCE rate in FY21E after an exceptional
year. FY21E Revenue will be driven by addition of 4 new vessels, meanwhile, Core
Net Income is likely to moderate by 12.5%, due to lower gross profit margin and
higher interest costs.

Having said that, note that FY21E Core Net Income has expanded to 3.2x of FY19,
implying an attractive 2.5x FY21E P/E.

Fig 6 - Consolidated P&L

Y/E 30 Dec (USD m) FY19A FY20E FY21E FY22E FY23E
Total Gross Revenue 101.5 213.5 239.6 259.8 266.6
Gross Revenue Growth 18.8% 110.5% 12.2% 8.4% 2.6%

Operating Expense
COGS (58.5) (90.3) (112.3) (122.4) (129.7)

Gross Profit 42.9 123.2 127.3 137.4 136.8

Gross Margin 42.3% 57.7% 53.1% 52.9% 51.3%

Other Expenses (8.7) (10.5) (11.3) (12.1) (12.5)

EBITDA 54.4 150.6 161.9 173.6 174.7

EBITDA Margin 53.6% 70.5% 67.6% 66.8% 65.5%

EBIT 34.2 112.7 116.1 125.3 124.4

EBIT Margin 33.7% 52.8% 48.4% 48.2% 46.7%

Other (Expenses)/Income 6.5 0.0 0.0 0.0 0.0

Interest Expense (16.0) (23.7) (37.5) (33.8) (29.0)
Interest Income 0.0 0.0 0.0 0.0 0.0
EBT 24.7 89.0 78.6 91.5 95.4
Tax (1.5) (2.8) (3.1) (3.1) (3.2)

Net Income 23.3 86.2 75.5 88.4 92.2

Core Net Income 21.0 77.8 68.1 79.7 83.2

Core Net Margin 20.7% 36.4% 28.4% 30.7% 31.2%
Shares Outstanding (‘m) 9,239.8 11,365.3 11,365.3 11,365.3 11,365.3

EPS (US$’c) 0.227 0.684 0.599 0.701 0.732

EPS Growth 2.2% 201.0% -12.5% 17.1% 4.3%
Source: SCCM Research, Company
BUY PT Buana Lintas Lautan Results Review
Indonesia
TP: IDR389 Tbk Shipping
78.5% BULL IJ

Fig 7 - Consolidated Balance Sheet

Y/E 30 Dec (USD m) FY19A FY20E FY21E FY22E FY23E
Cash 6.1 3.0 2.9 23.2 64.6
ST Invt 44.1 44.1 44.1 44.1 44.1
Trade Receivables 20.3 37.9 41.4 42.7 43.8
Inventories 4.3 6.5 6.4 5.2 5.5
Other Current Assets 58.6 56.8 63.6 68.9 70.6
Current Assets 133.4 148.3 158.4 184.0 228.6

Net Fixed Assets 358.4 565.5 599.0 616.7 598.5

Intangible Assets - gdwill 58.6 58.6 58.6 58.6 58.6
LT Invmnt 0.0 0.0 0.0 0.0 0.0
Other LT Assets 0.4 0.4 0.4 0.4 0.4
Non Current Assets 417.4 624.5 658.0 675.7 657.5
Total Assets 550.8 772.8 816.4 859.7 886.1

Trade Payables 11.5 16.0 19.4 20.1 21.3

OD & ST Debt 57.6 52.2 57.6 59.0 61.6
Tax Provision 10.2 10.2 10.2 10.2 10.2
Other ST Liabilities 7.4 7.4 7.4 7.4 7.4
Current Liabilities 86.8 85.8 94.6 96.7 100.5

Other LT Liabilities 3.7 3.7 3.7 3.7 3.7

LT Debt 177.4 314.1 273.5 226.3 156.7
Total Liabilities 267.9 403.6 371.8 326.7 260.9

Shareholder's Capital 334.5 334.5 334.5 334.5 334.5

Retained Earnings (91.2) (13.5) 54.6 134.3 217.5
Treasury Stock 0.0 0.0 0.0 0.0 0.0
Others 25.0 25.0 25.0 25.0 25.0
Minority Interest 14.7 23.2 30.6 39.2 48.3
Total Equity 283.0 369.2 444.7 533.0 625.2
Total Liabilities and Equity 550.8 772.8 816.4 859.7 886.1
Source: SCCM Research, Company
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