Company Focus Elnusa Research - Trimegah-21Dec2009.pdfThe government issued Finance Minister...

Share Price : Rp345Rp345Rp345Rp345Rp345

Sector : Oil and gas

Price Target : Rp540 (56.5%)

BUY

Steve MatuariSteve MatuariSteve MatuariSteve MatuariSteve MatuariTel: (6221) 515 2727

[email protected]

Stock DataStock DataStock DataStock DataStock Data

Reuters Code ELSA.JK

Bloomberg Code EKLSA IJ

Issued Shares (m): 7,298

Mkt Cap (Rpbn): 2,517

Average Daily T/O: 44.1m

52-Wk range : Rp420 / Rp114

Major Shareholders:

Pertamina (persero) 41.7%

Tridaya Esta 37.7%

Public 20.6%

Consensu sConsen su sConsen su sConsen su sConsen su s

RevenueRevenueRevenueRevenueRevenue 09E 09E 09E 09E 09E 10F 10F 10F 10F 10F

Consensus (Rp) 3,001 3,345

TRIM VS Cons (%) 110.8 116.4

EB ITDAEBITDAEBITDAEBITDAEBITDA

Consensus (Rp) 636 575

TRIM VS Cons (%) 87.4 127.7

E P SE P SE P SE P SE P S

Consensus (Rp) 63 37

TRIM VS Cons (%) 122.2 81.1IND

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We place a BUY call on ELSA with TP of Rp540. Presently, the counter is trading at 1.5% -42.1% discount to regional multiples. We see the real treasure of the company is in itsdatabase. Under Patra Nusa Data, ELSA handles all government's oil and gas database of1,654 sites. Current market cap of Rp2.5tr implies acquisition cost of only Rp1.5bn/data vsdaily offshore seismic rate of US$140,000 - US$150,000.

Recommendation :Recommendation :Recommendation :Recommendation :Recommendation :

Trimegah Research is also available electronically on : FirstCall.com, Reuters Knowledge for Investment Management websiteand securities.com

Year end DecYear end DecYear end DecYear end DecYear end Dec 20072007200720072007 20082008200820082008 2009E2009E2009E2009E2009E 2010F2010F2010F2010F2010F 2011F2011F2011F2011F2011F

Revenue (Rpbn) 2,104 2,544 3,325 3,895 4,567Revenue Growth (%) 12.0 20.9 30.7 17.1 17.2EBITDA (Rpbn) 264 331 556 734 993EBITDA Growth (%) 30.5 25.2 68.1 32.1 35.2Net Profit (Rpbn) 100 134 558 222 330EPS Growth (%) 20.6 33.6 317.4 (60.2) 48.2ROAE (%) 11.0 10.4 29.7 10.1 13.7DPS (Rp) - - 3.7 15.3 6.1Div Yield (%) 0.0 0.0 1.1 4.5 1.8P/E (x) 24.8 18.5 4.4 11.2 7.5P/BV (x) 2.6 1.5 1.2 1.1 1.0EV / EBITDA (x) - 9.1 4.5 4.3 3.1

Financial SummaryFinancial SummaryFinancial SummaryFinancial SummaryFinancial Summary

Initiation

Company Description:Company Description:Company Description:Company Description:Company Description:Incorporated in 1969, Elnusa (ELSA)started its business in marine electronicsegment. ELSA completed its internalrestructuring in Oct07 and became publiclisted company in Jan08. The companycommands over 80% of national walletshare in geoscience service business. Italso has 50% invested interest in Bangkanaigas block and 15% in Ramba oil block.Under Patra Nusa Data, ELSA handles allgovernment's oil and gas database,including existing and potential projectsthroughout Indonesia.

Oil price is in the up-trend.Oil price is in the up-trend.Oil price is in the up-trend.Oil price is in the up-trend.Oil price is in the up-trend. We forecast oil price to rise from an average US$62/barrel in2009 to US$80/barrel in 2010 and US$90/barell in 2011, stemming from beliefs that: 1) globaleconomic recovery is progressing and 2) US$ is likely to depreciate against other currencies.

Investment climate in Indonesia oil and gas sector is now more conducive.Investment climate in Indonesia oil and gas sector is now more conducive.Investment climate in Indonesia oil and gas sector is now more conducive.Investment climate in Indonesia oil and gas sector is now more conducive.Investment climate in Indonesia oil and gas sector is now more conducive.The government issued Finance Minister Regulation No. 06/PMK.010/2005 which relievesimport surcharge for upstream operation goods and opens possibility to re-collect VATpaid during the exploration period.

Most of the new oil and gas projects are offshore fields.Most of the new oil and gas projects are offshore fields.Most of the new oil and gas projects are offshore fields.Most of the new oil and gas projects are offshore fields.Most of the new oil and gas projects are offshore fields. Government claimed thatit has discovered 50 oil and gas cavities, most of them are offshore projects. Next year, theGovernment targets upstream oil and gas investment to reach US$14.0bn.

Pertamina is in aggressive mode. Pertamina is in aggressive mode. Pertamina is in aggressive mode. Pertamina is in aggressive mode. Pertamina is in aggressive mode. Pertamina plans to increase FY10 capex by 56.4%YoY to Rp39.0tr, 89% of it will be allocated for investment in upstream activity.

Indonesia is developing its world's largest geothermal resource.Indonesia is developing its world's largest geothermal resource.Indonesia is developing its world's largest geothermal resource.Indonesia is developing its world's largest geothermal resource.Indonesia is developing its world's largest geothermal resource. Our countryhas potential geothermal resource of 27,140MWe. As part of commitment in global warmingprogram, the Government is planning to diversify its energy source using geothermal energy.

WhatWhatWhatWhatWhat'''''s New ?s New ?s New ?s New ?s New ?

US$341.6m project on hand, US$125.8m new projects in the pipeline.US$341.6m project on hand, US$125.8m new projects in the pipeline.US$341.6m project on hand, US$125.8m new projects in the pipeline.US$341.6m project on hand, US$125.8m new projects in the pipeline.US$341.6m project on hand, US$125.8m new projects in the pipeline. In9M09, ELSA secured total upstream service contract of US$341.6m. The company is alsopursuing another US$125.8m new contract in 4Q09.

Eyeing more wallet share in offshore seismic segment. Eyeing more wallet share in offshore seismic segment. Eyeing more wallet share in offshore seismic segment. Eyeing more wallet share in offshore seismic segment. Eyeing more wallet share in offshore seismic segment. Reason for this are: 1)bigger market, 2) lower competition and 3) ticker margin. With this strategy, we forecastELSA's operating margin to expand from 10.4% in 2009 to 11.7% in 2011.

Geothermal project: the next big thing.Geothermal project: the next big thing.Geothermal project: the next big thing.Geothermal project: the next big thing.Geothermal project: the next big thing. In state 10GW power plant project II, 60%of them will use geothermal energy. Meanwhile, Pertamina will spend Rp2.2tr to drill 27geothermal wells in 2010. ELSA should win at least 40% of these projects.

Bottom line to grow by 28.5% CAGR08-13. Bottom line to grow by 28.5% CAGR08-13. Bottom line to grow by 28.5% CAGR08-13. Bottom line to grow by 28.5% CAGR08-13. Bottom line to grow by 28.5% CAGR08-13. With revenue to grow by 16.7%CAGR08-13 and EBITDA margin to improve, from 13.0% in 2008 to 21.5% in 2013, weforecast net profit to grow by 28.5% CAGR08-13.

Low gearing + high financial coverage = expansion prospect.Low gearing + high financial coverage = expansion prospect.Low gearing + high financial coverage = expansion prospect.Low gearing + high financial coverage = expansion prospect.Low gearing + high financial coverage = expansion prospect. We estimateFY09 - FY11 DER to be at 0.4x - 0.5x while TIER at 3.4x - 5.6x. Assuming DER of 1.0x,ELSA is still able to add Rp982bn debt in 2010, still with a bold TIER of 2.1x.

Impact :Impact :Impact :Impact :Impact :

Company FocusCompany FocusCompany FocusCompany FocusCompany Focus 21 December 2009 21 December 2009 21 December 2009 21 December 2009 21 December 2009

ElnusaElnusaElnusaElnusaElnusaThe Hidden Treasure

2 PT Trimegah Securities Tbk - 21 December 2009

Company Update - ElnusaCompany Update - ElnusaCompany Update - ElnusaCompany Update - ElnusaCompany Update - Elnusa

3Q08 4Q08 1Q09 2Q09 3Q09

Sales 481 895 698 916 875

Gross Profit 80 143 138 160 128

Operating Profit 36 81 96 92 68

Net profit 17 32 40 425 27

Gross Margins (%) 16.5 16.0 19.8 17.4 14.6

Opr Margins (%) 7.5 9.1 13.8 10.0 7.8

Net Margins (%) 3.5 3.5 5.7 46.4 3.1

Interim Results (Rpbn)

Year end 31 Dec 2007 2008 2009E 2010F 2011F

Revenue 2,104 2,544 3,325 3,895 4,567

% growth 12.0 20.9 30.7 17.1 17.2

COGS 1,705 2,149 2,743 3,112 3,649

Gross Profit 399 395 582 783 918

Opr Profit 144 180 346 420 534

EBITDA 264 331 556 734 993

% growth 30.5 25.2 68.1 32.1 35.2

Net int inc/(exp) (42) (59) (92) (123) (95)

Gain/(loss) forex (7) (31) 54 - -

Other inc/(exp) 45 83 466 (0) 0

Pre-tax Profit 141 174 773 296 439

Tax 38 34 186 62 92

Minority Interest 3 6 29 12 17

Extra items 0 - - - -

Net Profit 100 134 558 222 330

% growth 20.6 33.6 317.4 (60.2) 48.2

Income Statement (Rpbn)

Year end 31 Dec 2007 2008 2009E 2010F 2011F

Cash and Deposits 107 401 1,030 527 621

Other current assets 888 1,220 475 1,223 1,418

Net fixed asset 739 1,213 1,503 1,824 1,915

Other asset 426 483 523 571 628

Total Asset 2,159 3,318 4,561 4,671 5,202

ST Debt 406 456 619 748 682

Other current liabilities 512 708 1,259 1,099 1,329

LT Debt 186 462 444 467 531

Other LT Liabilities 91 60 62 64 67

Minority interest 15 18 30 36 38

Total Liabilities 1,195 1,686 2,385 2,379 2,608

Shareholders Equity 949 1,614 2,145 2,256 2,556

Net (debt)/cash (485) (516) (34) (688) (592)

Total cap employed 1,541 2,531 3,209 3,471 3,768

Working capital 76 458 (374) (97) 28

Balance Sheet (Rpbn)

Year end 31 Dec 2007 2008 2009E 2010F 2011F

Net Profit 100 134 558 222 330

Depr / Amort 120 150 210 314 459

Other 35 57 16 97 75

Chg in Working Cap (255) (206) 269 (403) (57)

CF's from oprs (0) 135 1,053 231 807

Capex (279) (628) (540) (683) (607)

Others - - - - -

CF's from investing (279) (628) (540) (683) (607)

Net change in debt 288 295 200 151 (3)

Others (59) 493 (85) (203) (103)

CF's from financing 229 788 115 (51) (106)

Net cash flow (50) 294 628 (503) 94

Cash at BoY 157 107 401 1,030 527

Cash at EoY 107 401 1,030 527 621

Free Cash Flow (249) (452) 583 (354) 275

Cash Flow (Rpbn)

Key Ratio Analysis

Year end 31 Dec 2007 2008 2009E 2010F 2011F

Profitability

Gross Margins (%) 19.0 15.5 17.5 20.1 20.1

Opr Margins (%) 6.9 7.1 10.4 10.8 11.7

EBITDA Margins (%) 12.6 13.0 16.7 18.9 21.7

Net Margins (%) 4.8 5.3 16.8 5.7 7.2

ROAE (%) 11.0 10.4 29.7 10.1 13.7

ROAA (%) 5.0 4.9 14.2 4.8 6.7

Stablity

Current Ratio (x) 1.1 1.4 0.8 0.9 1.0

Net. Debt/Equity (x) 0.5 0.3 0.0 0.3 0.2

Int. Coverage (x) 3.4 3.1 3.8 3.4 5.6

Efficiency

Receivable Days 110 114 113 112 111

Payable Days 47 51 50 50 50

Inventory Days 10 13 14 14 14

Date Event

6-Feb-08 IPO @ Rp. 400

Stock Data

Issued Shares (m) 7,298.5

Par Value (Rp) 100

Mkt Cap (Rpbn) 2,517.9

12 - Months High / Low (Rp) 420 / 114

12 - Months average daily t/o (m) 44.1m

Capital History



Company OutlookCompany OutlookCompany OutlookCompany OutlookCompany Outlook

Main beneficiary of positive turnaround in oil and gas investmentMain beneficiary of positive turnaround in oil and gas investmentMain beneficiary of positive turnaround in oil and gas investmentMain beneficiary of positive turnaround in oil and gas investmentMain beneficiary of positive turnaround in oil and gas investmentQuick rebound in oil price, from its low of US$33.9/barell in Dec08 to US$72.7/barell in Dec09, have ledoil and gas exploration activity to re-ignite. Intact with the story is ELSA's upstream service revenue thatposted a 49.9% YoY jump in 9M09. Going forward, we believe that oil price is still in the up-trend. Weforecast average oil price to rise from US$61.6/barell in 2009 to US$80.0/barell in 2010 and US$90.0/barellin 2011. Again, this should further boost exploration activity in Indonesia. Pertamina itself is in expansionmode, increasing its capex by 56% in 2010. Being market leader in the industry and subsidiary of Pertamina(41.7% stake), ELSA should enjoy the most from this rosy environment.

Eyeing more market share in high margin offshore marketEyeing more market share in high margin offshore marketEyeing more market share in high margin offshore marketEyeing more market share in high margin offshore marketEyeing more market share in high margin offshore marketNext year, ELSA plans to increase its penetration in offshore service segment. This is because the segmentpromises bigger market (most of new projects are now offshore project), lower competition (only 30 seismicships in the world) and ticker margin (more technical savvy) than onshore segment. According to management,daily rate for marine seismic service is about US$140,000 - US$150,000 while on-land rate is only aboutUS$40,000 - US$45,000. Profitability wise, on-land seismic service only offers margin of around 20% - 30%while marine by about 45% - 50%.

World Oil Price (NYMEX)

Source : Bloomberg

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Market Share in Geoscience Services

Source : Company

SDA-Land: Seismic Data Acquisition (Land)

NNS: Navigasi & Non Seismic

TZ: Transition Zone

GDP: Geo Data Processing

GGR: Geology Goephysics Reservoir



Joint venture: providing growth with minimum capex ...Joint venture: providing growth with minimum capex ...Joint venture: providing growth with minimum capex ...Joint venture: providing growth with minimum capex ...Joint venture: providing growth with minimum capex ...One issue in the offshore service business is the requirement of high capital expenditure. For an example,price of a new marine seismic ship is approximately US$125m. To overcome this, the company is tyingventure with GCG Veritas, Waverfield US and Bergen Oilfield Services for marine seismic and transitionzone service, Schlumberger for offshore drilling service and Qserve for coiled tubing service.

... We see minor hijack risk due to economic of scale and power of connection... We see minor hijack risk due to economic of scale and power of connection... We see minor hijack risk due to economic of scale and power of connection... We see minor hijack risk due to economic of scale and power of connection... We see minor hijack risk due to economic of scale and power of connectionThe cooperation should not endanger ELSA because these international companies will not be efficientshould they independently penetrate Indonesia market. It is more viable for them to cooperate and shareexpertise and infrastructure with local partner rather than to invest directly. Worth noting that equipmentis something that can be bought, but not customer intimacy and connection, especially considering that oiland gas business is a highly regulated business. Nevertheless, the company, going forward, is eyeing toincrease its investment spending in offshore equipments, particularly in marine seismic ship, but with prudentmanner.

Catching opportunity in geothermal projectsCatching opportunity in geothermal projectsCatching opportunity in geothermal projectsCatching opportunity in geothermal projectsCatching opportunity in geothermal projectsGeothermal project is the next big thing for ELSA. Huge geothermal potency in Indonesia provides abundantopportunities for ELSA to participate in. Pertamina Geothermal Energy (PGE), a subsidiary of Pertamina andsister company of ELSA, will spend up to Rp2.2tr of capex for drilling 27 geothermal wells in 2010. Historically,around 40% of Pertamina's project tenders are won by ELSA. Having said that, we believe PGE's ampleprojects will provide huge upside for ELSA's geothermal service unit.

Patra Nusa Data: the real treasurePatra Nusa Data: the real treasurePatra Nusa Data: the real treasurePatra Nusa Data: the real treasurePatra Nusa Data: the real treasureWe believe ELSA could be a darling for acquisition target from global players who have serious intention toinvest in Indonesia's oil and gas projects. Aside from its promising upstream service business, we see the realtreasure of the company actually lies in its oil and gas database which currently under the hand of ELSA'ssubsidiary Patra Nusa Data (PND). It is worth noting that PND handles all government's oil and gasdatabase, including existing and potential projects throughout Indonesia. Presently, PND has data masterlist of 1,654 oil and gas working sites, including seismic data of 810 wells.



Financial ForecastFinancial ForecastFinancial ForecastFinancial ForecastFinancial Forecast

US$341.6m project on hand, US$125.8m new projects in the pipelineUS$341.6m project on hand, US$125.8m new projects in the pipelineUS$341.6m project on hand, US$125.8m new projects in the pipelineUS$341.6m project on hand, US$125.8m new projects in the pipelineUS$341.6m project on hand, US$125.8m new projects in the pipelineIn 9M09, ELSA has secured total contract for upstream service project in amount of US$341.6m, consists ofUS$201.3m from carryover (previous years) contracts and US$140.3m from this year's new contracts. Weestimate company to book some US$215.0m as revenue in FY09, while another US$126.6m are portion forFY10 onward revenue. Meanwhile, ELSA is also pursuing another US$125.8m new contract in 4Q09. In ourmodel, we assume a conservative success rate of 30% for the pipeline project.

More upstream business + higher asset utilization = improving marginMore upstream business + higher asset utilization = improving marginMore upstream business + higher asset utilization = improving marginMore upstream business + higher asset utilization = improving marginMore upstream business + higher asset utilization = improving marginWith contribution of upstream business to increase from 69% in 2009 to 80% in 2011, we expect ELSA'sgross margin to improve from an estimated 17.5% in 2009 to 20.1% in 2011. Furthermore, declining cost-to-revenue ratio resulted from higher asset turnover and tied cost management will also add weight tocompany's profitability at the operating level. This will result operating margin to increase from 10.4% in2009 to 11.7% in 2011.

Carry New Total Rev. 2010 Prospect Main contract -2009

US$m over 2009 onwards 2009

Integrated Geoscience Serv 39.42 108.29 147.71 112.38 35.33 58.12GDL (Land Seismic) 29.38 71.21 100.59 86.66 13.92 58.12 Petrochina,

Anadarko, PertaminGDM (Trans & Marine Seismic) 7.12 36.67 43.79 22.39 21.41 0 Conoco, Total E&P

Indonesia, AmeradaGDP (Seismic Process) 2.92 0.41 3.33 3.33 0 0 Total E&P Indonesia,

Amerada, Exxon MobilIntegrated Drilling Serv 87.36 20.62 107.98 53.57 54.41 32.78RDE (Wireline Logging) 34.88 12.73 47.61 34.63 12.97 25.28 Pertamina,

PetrochinaWLT (Well Logging) 2.27 4.98 7.25 5.95 1.31 7.5 Pertamina, Chevron

Pacific, IndonesiaDRS ((Drilling) 46.68 1.82 48.5 8.37 40.13 0 Odira, Bangadua

Petroleum, VicoIDS (Integrated Drilling) 3.53 1.09 4.62 4.62 0 0 Pertamina

GeothermalIntegrated Oilfield Serv 74.54 11.38 85.92 49.03 36.89 434.93Well service 55.03 8.78 63.81 33.19 30.62 16 Pertamina, Total E&P

Indo, Vico, ChevronEPF 19.51 2.6 22.11 15.84 6.27 18.93 Pertamina, Tertagas,

ChevronTotal 201.32 140.29 341.61 214.98 126.63 125.83

Integrated Upstream Services Key Contracts

Source: Trimegah Research

Profitability

Source : Trimegah Research

0 .0 %

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2004 200 5 200 6 2007 2008 200 9 201 0 2011 2012 201 3

G ro s s M a rgins (% ) O pr M a rgins (% ) Ne t M a rgins (% )



Bottom line to grow by 28.5% CAGR08-13Bottom line to grow by 28.5% CAGR08-13Bottom line to grow by 28.5% CAGR08-13Bottom line to grow by 28.5% CAGR08-13Bottom line to grow by 28.5% CAGR08-132009 is an exceptional year for ELSA. We expect company to post FY09 net profit growth of 140.5% YoYto Rp558.4bn, mainly on the back of: 1) FY09 revenue growth of 30.7% YoY, 2) significant improvement inEBITDA margin, from 16.7% to 19.0%, 3) positive reversal in forex to Rp53.9bn gain vs last year's loss ofRp30.8bn, and 4) extraordinary income of Rp473.9bn from divestment proceeds of Infomedia Nusantara.With revenue to grow by 16.7% CAGR08-13 and EBITDA margin to improve, from 13.0% in 2008 to21.5% in 2013, we forecast net profit to grow by 28.5% CAGR08-13.

Low gearing and high coverage ratio open prospect of aggressive expansionLow gearing and high coverage ratio open prospect of aggressive expansionLow gearing and high coverage ratio open prospect of aggressive expansionLow gearing and high coverage ratio open prospect of aggressive expansionLow gearing and high coverage ratio open prospect of aggressive expansionELSA will not face any funding difficulty for its future expansion as the company still has enough room foradditional debt in its book. we estimate FY09 - FY11 debt-to-equity ratio (DER) to be at the range of 0.4x- 0.5x while interest coverage ratio (TIER) at 3.4x - 5.6x. Assuming FY10 target DER of 1.0x, the companyis still able to add debt of approximately Rp982bn, still with a bold TIER of 2.1x.

Net Profit


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Ne t Inco me (LHS) Y o Y Gro w th (R HS )

Debt to Equity Ratio


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Valuation and RecommendationValuation and RecommendationValuation and RecommendationValuation and RecommendationValuation and Recommendation

Valuation methodologyValuation methodologyValuation methodologyValuation methodologyValuation methodologyWe initiate a BUY on ELSA with target price (TP) of Rp540. Our TP is based on DCF valuation methodologywith WACC of 14.0% and terminal growth rate of 5.0%. We calculate our WACC using the followingassumptions: 1) risk-free rate of 11.5%, 2) market risk premium of 5.0%, 3) beta of 1.3x, 4) average cost ofdebt of 8.7% and 5) target D/E of 0.5x. Meanwhile, we set our terminal growth rate stemming from beliefsthat: 1) Indonesia's sustainable GDP growth is 5.0%, 2) average oil price growth is 10.2% CAGR00-10, and3) forecasted EBITDA growth is 29.1% CAGR08-13. Presently, the counter is trading at FY10 P/E of 11.2xand EV/EBITDA of 4.3x, which is 29.3% discount from our DCF-based TP whilst offering attractive FY10dividend yield of 4.5%.

Multiples are attractive compared to its peers in the regionMultiples are attractive compared to its peers in the regionMultiples are attractive compared to its peers in the regionMultiples are attractive compared to its peers in the regionMultiples are attractive compared to its peers in the regionFrom regional perspective, ELSA's multiples is trading at steep discount against its average peers in theregion Meanwhile, ELSA's earning prospect is also stronger than average regional performance.

Valuation Matrix 2010F


(EV/EBITDA)

-

3.0

6.0

9.0

12.0

15.0

18.0

4.0 8.0 12.0 16.0 20.0 24.0(P/E)

Sector

ELSA IJ

568 HK

839 HK

KNMG MK

KEPB MK

SGB MK

AMRB MK

TOFF MK

SCRES MK

EZRA SP

KST SP

6269 JP

M. Cap Net Profit EBITDA P/E EV/EBITDAUS$m CAGR09-11 CAGR09-11 09E 10F 11F 09E 10F 11F

Shandong Molong Petroleum 568 HK 495 28.8% 17.3% 12.3 8.4 7.4 9.7 8.1 6.7Anhui Tianda Oil Pipe Co 839 HK 364 44.4% 50.2% 10.7 6.5 5.1 7.7 5.4 3.3Modec Inc 6269 JP 749 52.1% 58.9% 30.1 20.1 13.0 16.2 12.3 6.4Knm Group KNMG MK 845 10.8% 7.4% 9.9 9.3 8.1 6.8 6.3 5.5Kencana Petroleum KEPB MK 593 22.1% 17.8% 16.9 13.4 11.4 11.3 8.7 7.3Scomi Group SGB MK 131 22.2% 12.1% 6.2 4.9 4.1 5.3 4.8 4.1Alam Maritim Resources AMRB MK 282 11.8% 7.8% 9.5 8.3 7.6 8.6 7.9 6.9Tanjung Offshore Bhd TOFF MK 73 220.0% 46.0% 64.5 8.2 6.3 18.8 10.9 9.2Sapuracrest Petroleum SCRES MK 850 27.3% 13.0% 24.3 18.4 15.0 7.8 6.5 6.1Ezra Holding EZRA SP 1,045 33.3% 32.4% 25.3 17.7 14.2 21.6 16.5 13.1Ks Energy Services KST SP 298 10.0% 17.2% 9.2 8.7 7.6 7.7 6.0 5.1Elnusa ELSA IJ 265 -23.1% 33.6% 4.5 11.3 7.6 4.6 4.4 3.1

TOTAL 5,990 20.4% 21.8% 13.7 11.5 9.4 9.1 7.5 6.0Source: Trimegah Research

Peers Comparison



Cheap in replacement cost perspectiveCheap in replacement cost perspectiveCheap in replacement cost perspectiveCheap in replacement cost perspectiveCheap in replacement cost perspectiveFrom the media, we aware that Tridaya Esta plans to sale its investments in several companies, one of themin ELSA. Current ELSA's market cap of Rp2.5tr implies Rp1.5bn per data of working site (Rp2.5tr / 1,654working sites). As comparison, ELSA charges daily rate of US$40,000 - US$45,000 for onshore seismicservice and US$140,000 - US$150,000 for offshore seismic service. It's a bargain deal, we believe.

Sensitivity analysisSensitivity analysisSensitivity analysisSensitivity analysisSensitivity analysisBased on our simulation, ELSA's earning is more sensitive to EBITDA margin than revenue growth. Valuationwise, our DCF TP is more sensitive to WACC and terminal growth than EBITDA margin and revenue growth.

Change in net profit Change in

2009E 2010F 2011F DCF TP

+1.0% in revenue growth +0.6% +4.3% +5.2% +6.1%+1.0% in EBITDA margin +4.3% +13.1% +10.4% +9.1%+1.0% in WACC - - - -15.5%+1.0% in terminal growth - - - +15.5%

Source: Trimegah Research

Sensitivity analysis



Industry OutlookIndustry OutlookIndustry OutlookIndustry OutlookIndustry Outlook

Upbeat oil price prospect to spur exploration activity in 2010 onwardUpbeat oil price prospect to spur exploration activity in 2010 onwardUpbeat oil price prospect to spur exploration activity in 2010 onwardUpbeat oil price prospect to spur exploration activity in 2010 onwardUpbeat oil price prospect to spur exploration activity in 2010 onwardWe forecast average oil price to rise from an estimated US$61.6/barrel in 2009 to US$80.0/barrel in 2010and US$90.0/barrel in 2011, stemming from beliefs that: 1) demand outlook for oil is brighter on the backof an expected recovery in global economy while 2) US$ is likely to depreciate against other currencies.This certainly will induce companies to invest more in oil and gas project. Our channel check reveals thatconducive oil price level for investment environment is at US$50/barrel - US$80/barell, depending whetherit is an onshore or offshore project. Meanwhile, cash cost of an oil company is approximately US$25/barrelfor onshore project and US$30/barell - US$40/barell for offshore project.

Indonesia is also reforming its upstream oil and gas sectorIndonesia is also reforming its upstream oil and gas sectorIndonesia is also reforming its upstream oil and gas sectorIndonesia is also reforming its upstream oil and gas sectorIndonesia is also reforming its upstream oil and gas sectorDespite having decades of oil reserves, Indonesia has become net importer of oil since 2004. This is becausedomestic consumption grew by 3% CAGR96-08 while production declined by 3% CAGR94-08. Aware ofthe issue, the government is pushing state oil company Pertamina to initiate efforts to increase country's oiltake up. The result is quite positive. Oil production in 2008 has shown sign of early reversal, posted growthof 2.3% YoY to 354.4m barrels from 348.3m barrels in 2007 and is expected to reach 357m barrels in2009. Not just stops there, the government has also levied several non-investment-friendly regulations, oneof them by perfecting Oil and Gas Law No. 22/2001 through the issuance of Finance Minister RegulationNo. 06/PMK.010/2005. The regulation relieves import surcharge for upstream operation goods and openspossibility for oil and gas contractor to re-collect VAT (value-added tax) paid during the exploration period.

Source: Central for Petroleum & Energy Economics Studies (CPEES)

Indonesia Crude Oil Production and Consumption

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1994

1996

1998

2000

2002

2004

2006

2008

E

2010

F

2012

F

2014

F

2016

F

2018

F

2020

F

2022

F

2024

F

(Thousand Barrel/Day)

Actual Production Production – Pessimistic Scenario

Production – Optimistic Scenario Domestic Demand

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1994

1996

1998

2000

2002

2004

2006

2008

E

2010

F

2012

F

2014

F

2016

F

2018

F

2020

F

2022

F

2024

F

(Thousand Barrel/Day)

Actual Production Production – Pessimistic Scenario

Production – Optimistic Scenario Domestic Demand

Year 1973 1978 1983 1988 1993 1998 1999 2000 2001 2002 2003 2004 2005

Exploration Well 75 140 264 135 114 145 90 82 62 73 36 68 62


Exploration Activity in Indonesia



Aggressive spending by Pertamina in 2010Aggressive spending by Pertamina in 2010Aggressive spending by Pertamina in 2010Aggressive spending by Pertamina in 2010Aggressive spending by Pertamina in 2010To support government's target, Pertamina plans to spend approximately Rp39.0tr for FY10 capex. This is56.4% YoY higher than FY09 capex of Rp22.0tr. According to Finance Director of Pertamina Frederick STSiahaan, 89.0% of the capex, or equals to Rp34.7tr, will be dedicated for investment in the upstreamactivity.

Recent update: Ras-al-Khaimah to invest US$5.2bn in KalimantanRecent update: Ras-al-Khaimah to invest US$5.2bn in KalimantanRecent update: Ras-al-Khaimah to invest US$5.2bn in KalimantanRecent update: Ras-al-Khaimah to invest US$5.2bn in KalimantanRecent update: Ras-al-Khaimah to invest US$5.2bn in KalimantanAnother sign of growing interest in Indonesia oil and gas project is recent hunting by one of the respectedenergy player from United Arab Emirates, Ras al-Khaimah. It is reported that a venture of Ras al-Khaimah,one of the sheikdoms that make up the United Arab Emirates, plans to invest US$5.2bn to develop anintegrated energy project in Kalimantan. The estimated spending was higher than a plan of US$1.0bnproject that RAK Minerals & Metals Investment, a Ras al-Khaimah venture, gave in Mar09.

Indonesia ‘s Gas Reserves

Source: Department of Energy and Mineral Resources

8.67

0.78

8.21

24.47

6.04

4.46

4.36

47.39

54.20

23.92




Most of the new oil and gas projects are offshore fieldsMost of the new oil and gas projects are offshore fieldsMost of the new oil and gas projects are offshore fieldsMost of the new oil and gas projects are offshore fieldsMost of the new oil and gas projects are offshore fieldsGovernment claimed that it has discovered 50 oil and gas cavities, most of them are offshore projects. Outof that figure, 24 working areas were recently offered with 12 working areas have gained investmentcommitment in amount of US$1.4bn. Government targets upstream oil and gas investment to reach US$14.0bnin 2010. Most of these projects are also offshore project. This is positive because more offshore projectmeans more upstream services needed. It is also worth noting that offshore service project is much morelucrative, almost twice margin, than onshore service project whilst competition is also low due to an extremelyhigh investment and technology savvy.

Geothermal projects; the next big thingGeothermal projects; the next big thingGeothermal projects; the next big thingGeothermal projects; the next big thingGeothermal projects; the next big thingBesides gas and coal, the government is also promoting the use of geothermal energy as part of commitmentin green economy. As an illustration, in state 10GW power plant project phase II, the government allocates60% of the new power plants using geothermal energy. Worth to note that Indonesia has the largestgeothermal reserve in the world with forecasted reserves of 27,140MWe, spreading around 256 locationsthroughout Indonesia.

Source : Department of Energy and Mineral Resources



Company OverviewCompany OverviewCompany OverviewCompany OverviewCompany Overview

National pioneer in oil and gas service businessNational pioneer in oil and gas service businessNational pioneer in oil and gas service businessNational pioneer in oil and gas service businessNational pioneer in oil and gas service businessIncorporated in 1969, ELSA started its business as service provider in marine electronic segment. Now, ithas grown to become the largest upstream oil and gas service company in Indonesia. ELSA has 3 businesspillars: 1) oil and gas services, 2) asset-based investment, and 3) competency-based-supporting services. InOctober 2007, ELSA completed its internal restructuring via vertical and horizontal integration and becamea public listed company by offering 1.5bn new shares to the public in January 2008. Management allocatesRp309.5bn from the IPO proceeds to expand its strategic assets used in the integrated upstream services,such as deep-well drill and offshore equipments.

Market leader in geo-science and well-services businessMarket leader in geo-science and well-services businessMarket leader in geo-science and well-services businessMarket leader in geo-science and well-services businessMarket leader in geo-science and well-services businessOil and gas service unit is bread-and-butter of ELSA's business. In 9M09, the segment contributed 69% ofcompany's revenue. In this business, ELSA provides full range services, which include: integrated geo-science, drilling as well as oilfield services. ELSA is known as pioneer of geo-science service provider inIndonesia and commands over 80% of national wallet share.

ELSA’S Business Pillars

Source: company

Company History

Source: company

Founded as “PT Elektronika

Nusantara”1 9 6 91 9 6 91 9 6 91 9 6 91 9 6 9

Formed Seismic Data Processing (the

beginning of PT Elnusa Geosains Services)19721972197219721972

Established PT Elnusa Workover

Services (EWS)1 9 8 41 9 8 41 9 8 41 9 8 41 9 8 4

Formed PT Elnusa Drilling

Services (EDS)

20042004200420042004 Restructured corporate &

Business activittes (Vertical &

Horizontal merger)

20072007200720072007

Officially become a public

listed company in Indonesia

Stock Exhchange20082008200820082008

Divestment of PT infomedia

Nusantara shares as a

strategic focus to upstream oil

& gas services

20092009200920092009



Two oil and gas blocks to support assets based businessTwo oil and gas blocks to support assets based businessTwo oil and gas blocks to support assets based businessTwo oil and gas blocks to support assets based businessTwo oil and gas blocks to support assets based businessELSA's asset-based business comprised of 50% invested interest in Bangkanai gas block and 15% in Rambaoil block, both acquired in 2007. Bangkanai gas block is located in Central Kalimantan, which according toLAPI ITB, has probable gas reserves of 256bscf. The company is now on progress to drill 2 wells in Japoi andLahai site. Ramba oil block is located in South Sumatra with potential oil reserves of 5.3m bbl and hasproduced around 4,384 bopd in 2008, contributing 4% of company's pre-tax income in FY08 or equals toRp6.9bn.

Competency-based-supporting services: small but important in the value chainCompetency-based-supporting services: small but important in the value chainCompetency-based-supporting services: small but important in the value chainCompetency-based-supporting services: small but important in the value chainCompetency-based-supporting services: small but important in the value chainELSA's last business pillar comprised of subsidiaries & affiliates engaged in providing oil and gas datamanagement, information technology as well as telecommunication services to its clients. In 9M09, thebusiness only contributed 6% of company's total revenue. Despite its small contribution to the revenue, theunit has high strategic value as it caters oil and gas data management from Pertamina and State Departmentof Energy and Mineral Resources.

Bankanai Gas Block

Source : Company

Business Processes

Source : Company



Solid reputation resulted strong relationship with major oil companiesSolid reputation resulted strong relationship with major oil companiesSolid reputation resulted strong relationship with major oil companiesSolid reputation resulted strong relationship with major oil companiesSolid reputation resulted strong relationship with major oil companiesELSA's solid reputation and operational excellence have convinced Indonesian oil majors, which controlalmost 90% of national production, to sign contract with ELSA. Besides Pertamina and Medco Group,several world-class names, such as: Exxon, Petrochina, Chevron, Vico, and Total E&P Indonesie, are alsojoining the long list of company's loyal clienteles.

List of Awards

Source : Company



Investment RisksInvestment RisksInvestment RisksInvestment RisksInvestment Risks

Fluctuation in oil priceFluctuation in oil priceFluctuation in oil priceFluctuation in oil priceFluctuation in oil priceCompany's business is highly influenced by the prospect of oil price. In a high oil price environment, oil andgas companies tend to increase their exploration activities. Vice versa, in a low oil price environment, oiland gas companies tend to halt their exploration activity due to lower feasibility in the project. However, webelieve that oil price has hit its bottom in Dec08 and set to rise in 2010 onward.

Exchange rate dynamicsExchange rate dynamicsExchange rate dynamicsExchange rate dynamicsExchange rate dynamicsELSA's earning is highly sensitive to fluctuation in exchange rate as its revenue is based in US$. To mitigatethis, the company took most of its debt in US$ as natural hedge against its US$ revenue.

Contract defaultContract defaultContract defaultContract defaultContract defaultManagement said that customer may cancel a contract with a 30-day notice. Despite a penalty clause in thecontract, cancellation yields risk to our revenue forecast. Due to experience and tied risk management inclient selection, ELSA faces almost zilch default and/or one-sided contract cancellation case over the pastdecade. Furthermore, Most of ELSA's projects are from Pertamina and respected international names, suchas: Exxon, Petrochina, Chevron, Vico, and Total E&P Indonesie.

Rapid competitionRapid competitionRapid competitionRapid competitionRapid competitionELSA is directly competing with other international names where some of them have better technologyexpertise and equipment. However, management ensured us that, despite being in a highly competitiveindustry, becoming the most experienced local player is comparative advantage for ELSA. In addition, italso has close relationship with the Government and Pertamina. Going forward, the company plans toincrease its capex to strengthen its competitiveness in the market. We estimate ELSA to increase its capexfrom Rp539.8bn in 2009 to Rp682.7bn in 2010 Rp607.2bn in 2011.

Energy diversificationEnergy diversificationEnergy diversificationEnergy diversificationEnergy diversificationIt is widely known that states and privates are reducing their fossil fuel usage and replacing it with cheaperand/or more environmental-friendly alternatives, such as coal and bio-fuel. This may reduce demand outlookfor oil.

Change in Government regulationChange in Government regulationChange in Government regulationChange in Government regulationChange in Government regulationOil and gas sector is a highly regulated sector. On the other hand, political pressure that intends to limitprivate involvement in oil and gas exploration and reduce private portion in the revenue sharing scheme isstill high. This may hamper investment activity in the oil and gas sector.



PT Trimegah Securities Tbk19th Fl, Artha Graha Building

Jl. Jend. Sudirman Kav. 52-53Jakarta 12190, INDONESIA

Tel : (6221) 515 2727 Fax : (6221) 515 4580

DISCLA IMERDISCLA IMERDISCLA IMERDISCLA IMERDISCLA IMER

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for informationpurposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report hasbeen produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.

While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication,Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report isprovided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions withoutreliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for anydirect or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may haveacted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securitiesmay in future participate in an offering of the company's equity securities.

Company Focus Elnusa Research - Trimegah-21Dec2009.pdfThe government issued Finance Minister...

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Transcript of Company Focus Elnusa Research - Trimegah-21Dec2009.pdfThe government issued Finance Minister...