Maintain Buy with unchanged TP of IDR2,000

Oil prices rebound amid supply concerns and US CPI expectations

Brent Crude futures are back to USD81/bbl, recovering from a 13% decline in July. This rebound was supported by concerns over potential supply risks in the Middle East, as tensions between Iran and Israel escalated, with Iran reportedly rejecting Western appeals to avoid a retaliation. Simultaneously, the IEA maintained <1mmboepd demand growth attributing to weak consumption in China. Market attention is now focused on rate cut expectations, which could potentially have a positive impact on oil demand, in our view.

More organic growth projects coming online

Catalysts for MEDC in FY24F: 1) new production from West Belut (~40mboepd gross production) and Forel (~10mboepd gross production) fields are due to be online in 2H24F offsetting the decline from Corridor interest, lower Singapore gas demand, and Vietnam PSC (unlisted) divestment, 2) potential additional reserves from MEDC’s major assets amid high oil prices, and 3) higher-than-expected AMMN IJ (Not rated)’s contribution post receiving export permit. On the balance sheet, MEDC has bought back USD215mn of bonds YTD (total debt: ~USD3.6bn), consistent with their de-leveraging strategy. We expect the company to generate healthy operating cashflow of ~USD900mn in 2024-25F (vs 5Y average at USD550mn), providing room for inorganic growth, deleveraging and dividends.

Revise EBITDA/earnings by -3%/+14.8% for FY24F

We revise EBITDA by -3% in FY24F considering higher cost from scheduled maintenance and higher oil purchases for the year. We increase earnings by +14.8% in FY24F, considering higher contribution from AMMN post receiving the export permit. MEDC’s production profile should consist of ~70% gas this year with higher oil profile post Oman 60 acquisition, hence more exposure to current elevated spot oil price.

Valuation and risks: deserves higher valuation vs historical

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 Bloomberg consensus). Our target price implies 4.8x FY25F EV/EBITDA. The stock currently trades at 3.6x 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 oil and gas production history
 

 

Fig. 2: High EBITDA level with sustained mid-teens ROE

Fig. 3: MEDC oil ASP and cash cost (MEDC managed to maintain cash cost below USD10/bbl)

 

Fig. 4: MEDC net gearing and interest coverage

Fig. 5: Bond maturity profile (exclude bank loans)

Fig. 6: Assumption changes

Assumptions	Unit	MEDC			Previous
		FY24F	FY25F	FY26F	FY24F	FY25F	FY26F
Brent oil price	USD/bbl	82.0	80.0	80.0	82.0	80.0	80.0
Change (%)		0%	0%	0%
Oil ASP	USD/bbl	79.5	77.6	77.6	79.5	77.6	77.6
Change (%)		0%	0%	0%
O&G production	Mboepd	148.8	145.6	142.7	148.8	145.6	142.7
Change (%)		0%	0%	0%
Lifting cost	USD/bbl	8.5	8.5	8.4	8.1	8.1	8.0
Change (%)		5%	5%	5%
Revenue	USDmn	2,241	2,164	2,126	2,241	2,164	2,126
Change (%)		0%	0%	0%
Cost of revenue	USDmn	1,247	1,246	1,288	1,186	1,227	1,270
Change (%)		5%	2%	1%
EBITDA	USDmn	1,296	1,272	1,265	1,332	1,260	1,239
Change (%)		-3%	1%	2%
Net profit	USDmn	372	305	292	324	282	261
Change (%)		15%	8%	12%

 

Fig. 7: MEDC - SOTP valuation

SOTP Valuation	USD mn	Methodology	Implied multiple	Per share
Oil and gas
FY25F EV - 20% discount on peers' multiple	4,104	EV/EBITDA (x) avg peers	3.4	2,612
Power business
FY25F EV - 10% discount on peers' multiple	528	EV/EBITDA (x) avg peers	10.1	336
Amman Mineral - 21% ownership
Batu Hijau & Elang copper value - 10% discount on peers' multiple	1,538	EV/resources (USD/t) avg peers	714	979
Total value	6,170
Net (debt)/ cash	(2,991)			(1,904)
Net asset value (NAV)	3,179			2,023
Target price (IDR/share)				2,000

 

Fig. 8: MEDC EV/EBITDA band

 

 

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. 

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