Research & Stock Picks

Emiten Report

29 November 2023

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DEWA: BUY (Initiation) – TP at IDR 85 – A New, Golden Chapter

We initiate our coverage on DEWA with a BUY and a DCF-based TP of IDR 85 per share (CoE: 13.8%), implying a 2024F PE of 7.9x. We project DEWA to generate net profits of USD 29mn in FY24F and USD 32mn in FY25F, supported by its coal mining projects’ expansion (KPC, Arutmin, and CLS), potential copper and gold mining projects in Gorontalo and Palu, and lower interest expense. The company plans to hold a private placement by issuing a maximum of 18.26 billion ordinary Series B shares with an exercise price of IDR 50/share, and the proceeds will be used to settle some of its debt obligations in an effort to turn the company into a net cash company by 2024F. 

Potential additional earnings from new projects. We project DEWA to book solid revenue growth, with a 6-year CAGR of 7.0% from pre-COVID years to 2024F, driven mainly by the expansion of its coal mining projects (KPC, Arutmin, and CLS). As an integrated mining services company, the company will also focus on non-coal mineral mining services; the company has been actively seeking potential projects this year, focusing mainly on non-coal mining projects in Gorontalo and Palu. These projects, which include mining activities and the construction of port, mine roads, and gold ore processing facilities, should help boost DEWA’s revenue in the future, as those projects have an estimated mineral ore content of more than 400mt.

Positive sentiment from the upcoming Private placement. DEWA plans to hold a private placement by issuing a maximum of 18.26bn ordinary series B shares with an exercise price of IDR 50/share, subject to approval of the company’s EGM that will be held on December 18, 2023. The company will use the proceeds to settle some of its debt obligations, enabling it to cut its annual interest expense by ~USD 11.6mn, boosting its EPS to 67.1% and turning DEWA into a net cash company by 2024.

Initiate with BUY. We initiate our coverage on DEWA with a BUY and a DCF-based TP of IDR 85 per share with the following assumptions: CoE of 13.8%,  terminal growth rate of 3.0%, implying a 2024F P/E of 7.9x, -24.8% lower than its peers. We like DEWA due to its (1) LoM (Life of Mine) contract with its client (Arutmin and KPC mines), which should help mitigate the uncertainty risk, and (2) its diversification efforts to non-coal mineral mining services.

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