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Medco Energi Internasional MEDC IJ Buy- Earnings driven by AMMNs contribution

Medco Energi Internasional MEDC IJ Buy- Earnings driven by AMMNs contribution

Commodities and Energy MW 670 6th Aug, 2024

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Earnings driven by AMMN's contribution


In our recent report, we mentioned that one of the main catalysts for MEDC is AMMN IJ (Not rated)'s operational recovery. Indeed, MEDC’s overall 2Q24 result was driven by AMMN's contribution, which comprised 48% of the former's NPAT in 2Q24. At the operating level, the company delivered EBITDA of USD297mn (-9% q-q and -3 y-y), broadly in line with our forecast and the Bloomberg consensus estimate. Core profit was lower by 6% q-q due to declining production and higher cash cost per barrel, offsetting the increase in oil prices. This was as expected by management, as the company is targeting lower production for the year.

2Q24 results summary

    • 2Q24 revenue reached USD585mn (5% q-q, 5% y-y), bringing 6M24 revenue to USD1.1bn (2% y-y), in line with our/consensus estimates.
    • 2Q24 EBITDA was USD297mn (-9% q-q, -3% y-y), bringing 6M24 EBITDA to USD625mn (-23% y-y), in line with our/consensus estimates.
    • 2Q24 NPAT reached USD152mn (109% q-q, 305% y-y), bringing 6M24 NPAT to USD224mn (88% y-y), above our/consensus estimates, driven by AMMN's profit contribution of USD100mn in 6M24.


    Operational highlights and outlook

    MEDC booked 2Q24 O&G production at 153mboepd (-6% y-y) with cash cost of USD7.5/bbl (+20% y-y), ahead of the initial management guidance of 145-150mboepd with cash cost of USD7.5/boe (+20% q-q), lower than its USD8-9/boe guidance. The lower production was due to a turnaround activity in Bualuang and Corridor, and Vietnam asset's divestment. In our view, potential catalysts post 2Q24 results include: (1) additional reserves and potential acquisition toward the end of 2024F, (2) MEDC’s high gas profile, which should provide a buffer from oil price volatility, and (3) AMMN’s renewal of export permits and smelter commissioning.

    Valuation and risks

    We maintain our Buy recommendation with an unchanged TP of IDR2,000 derived from 3.4x/10x EV/EBITDA for its O&G/power segment, and a USD714/t EV/resource multiple for its stake in AMMN IJ (based on consensus estimates). Our target price implies 4.8x FY25F EV/EBITDA. The stock currently trades at 3.9x FY25F EV/EBITDA. We prefer MEDC as an oil proxy supported by earnings contribution from its stake in AMMN IJ. Downside risks to our TP include: 1) oil price volatility, and 2) delays in project execution.

    Fig. 1: MEDC’s results

    MEDC 2Q24 results snapshot           
    In USD mn2Q231Q242Q24QoQ YoY 6M236M24YoY% to Ve% to cons
    Revenue        558         556         5855%5%      1,116       1,1412%52%51%
    Net oil and gas sales       362        499        5204%44%        807       1,01926%  
    Electric power sales         53          54          6418%20%        164          118-28%  
    Gross Profit        238         233         194-16%-18%         470          427-9%41%38%
    Operating Profit        174         181         150-17%-14%         352          331-6%40%38%
    EBITDA        307         328         297-9%-3%         634          625-1%45%48%
    Net income          37           73         152109%305%         119          22488%63%64%
    Core profit (ex JV & other income)          44           45           42-6%-4%           80            879%24% 
                
    GPM42.6%41.8%33.2%   42.1%37.4%   
    OPM31.2%32.5%25.7%   31.6%29.0%   
    EBITDA margin55.0%59.0%50.8%   56.8%54.8%   
    NPM6.7%13.1%25.9%   10.7%19.7%   
                
    MEDC operational2Q231Q242Q24QoQ YoY 6M236M24YoY  
    Oil lifting (mbopd)       30.4        43.1        39.5-8%30%        30.3         41.336%  
    Gas sales (bbtupd)        656         578         554-4%-16%         673          566-16%  
    Oil & gas production (mbopd)        162         157         153-3%-6%      162.0       153.0-6%  
                
    Average oil price ($/bbl)       73.3        79.0        82.85%13%        75.2         80.87%  
    Average gas price ($/mmbtu)         7.0          7.0          7.00%0%          7.2           7.0-3%  
    Cash cost (USD/boe)         8.5          6.3          7.520%-11%          7.4           7.0-5%  
                
    Amman Mineral results2Q231Q242Q24QoQ YoY 6M236M24YoY% to target 
    Copper production (Koz)       53.0        97.5      138.542%161%      133.0       236.077%52% 
    Gold production (Mlbs)       47.0      166.5      328.497%599%      171.0       494.9189%49% 
    ASP Copper ($/t)       8,600    10,89427%N/A      9,878       9,8340%  
    ASP Gold ($/oz)     1,512      2,117      2,36011%56%      2,004       2,26313%  
                
    AMMN earnings contribution      (15.7)        27.0        73.1171%-565%        27.5       100.1264%  
    % to earnings-42%37%48%   23%45%   
    Source: Company data, Verdhana research

     

    Fig. 2: MEDC’s results – quarterly trends

    Source: Company data, Verdhana research

    INVESTMENT RATINGS
    A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

    GENERAL DISCLOSURE/DISCLAIMER 
    This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

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    ANALYST CERTIFICATION
    The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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    Rating Table


    Rating
    Remains    		Buy
    Target price
    Remains
    		IDR 2,000
    Closing price
    1 August 2024    		IDR 1,340

    Research Analysts

    Indonesia Research Team


    Michael Wildon (michael.wildon@verdhana.id)

    Tags: MEDC JK, MEDC IJ, OIL GAS, Michael Wildon
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