Indonesian Coal: “Asian Profit Play #2”

By Travis Johnson, Stock Gumshoe, August 2, 2011

I wrote a bit about Tony Sagami’s Asian Profit Play #1 last week, so it seems only appropriate to follow up with a look at numbers two and three — two other stocks that he thinks will benefit from the continuing growth in China and elsewhere in Asia, and that he’d be delighted to tell you about in exchange for a subscription payment to his Asia Stock Alert. If you missed that first article, which identified a palm oil stock (really a conglomerate, with lots of land holdings and BMW dealerships and etc. as well), you can read it here — he thinks it’s a $3 stock headed to $9 … and in case you’re worried, it hasn’t moved much since our unveiling last week.

So who are the others? We’ll look at #2 first today:

“Asian Profit Play #2:
“An Indonesian Powerhouse Making A Stinkin’ Fortune. Aim To TRIPLE Your Money!

“Indonesia is very rich in natural resources: Bauxite, silver, tin, copper, nickel, gold, coal, and oil. So with all these natural resources, Indonesia’s been a cash cow, making money hand over fist….

“Indonesia has the world’s third largest coal reserves!

“Coal may be dirty and unpopular with environmentalists, but it accounts for 25% of the world’s energy needs, and it is a big money-making business. My Indonesian powerhouse is making a stinkin’ fortune.

“The company has 2.9 BILLION metric tons of proven coal reserves and another 10 billion tons in resources — the largest in all of Asia — and it is going to enjoy several decades of steady, strong sales and growing profits selling that coal to China and India.

“Right now, its shares are a bargain in my opinion, especially since the company recently beat earnings estimates by 63% and netted $4.4 billion in revenue.

“With Asia’s economy heating up, energy demand is going to rise, coal prices are going to be pressured even higher, and buying this company’s shares is simply a no-brainer. I think this is another triple in a year’s time or less. Another $2,000 that could become $8,000.”

So yes, Mr. Sagami is yet another of those newsletter flacks who confuses a “triple” with a 300% gain — a triple would mean your investment returned 200%, thus tripling in size, but a quadrupling … which is what that $2,000 to $8,000 would be, is a 300% gain.

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Not that this is a key consideration, of course — I’m perfectly delighted to accept either a 200% or 300% gain. Heck, in this market you might catch me smiling at a 20% gain. So what is this teased stock?

After a quick consultation with the Thinkolator, I can tell you that the company Sagami is pitching here must be Bumi Resources (PBMRF on the pink sheets, BUMI if you’re able to trade directly on the home exchange in Jakarta).

And yes, at first glance it will look like a crazy little penny stock, since the pink sheets shares change hands for 38 cents … but this is actually a huge company, that’s just the way the share pricing and currency translation happens to work. Market cap is about $8 billion, and they are the largest coal exporter in Asia and largest coal miner in Indonesia — they trade at a bit of a premium to the market, about 22X last year’s earnings, and they pay a small dividend of just over 1%.

Bumi’s last report showed their numbers down a little bit, and they have had some trouble in the recent past with the unusually wet weather in Indonesia that slowed production, but they expect growth of at least 10% this year in both revenue and earnings, and they certainly have plenty of customers — they also got a big investment from the Chinese sovereign fund a couple years ago.

If you’d like a quick article that covers the general picture for Indonesian coal there’s a good one here from the FT, from last Fall, and David Fessler from the Oxford Club also wrote them up in a free article at SeekingAlpha about six weeks ago. I can verify that they do indeed claim about 2.9 billion tons of coal in reserves and another 10 billion in resources, and that they are indeed a major and profitable coal exporter with a geographic advantage for the world’s biggest coal importers (India, Japan, China), but I don’t know much else about them — if you’ve got a thought or two to share we’d be delighted to hear ’em (just use the comment box below).

And yes, the company knows that international investors are paying attention, so they’re happy to release their presentations and such in English — you can see their most recent presentations on their investor relations site here, and I find that the best portal for basic financial info for these types of stocks is usually Bloomberg, the ticker page for BUMI is here — remember to check home-market quotes and currency conversion if you ever decide to trade these types of stocks, at the moment you’ll get a bit less than 8,500 Indonesian Rupiah to the US dollar.

And I’m splitting this one up, looks like I’ll want to spend a bit more time on “Profit Play #3” because it’s a much more “newsy” pick, so I’ll get to that by the time I email you again tomorrow … or maybe before.



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August 2, 2011 1:22 pm

OhBoy, another chance to loan my money to the very worst possible polluters and despoilers… "Coal may be dirty and unpopular with environmentalists" … Unpopular is a very mild term.. Coal is the stupidest possible fuel to burn if you want to reduce CO2 in the atmosphere. But hey, we're just letting the market do its thing right? If I can get rich who cares if the planet is less livable…

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P Neumann
P Neumann
August 2, 2011 3:17 pm

A better environmental play may be United Tractors (JSE code UNTR). Cleaner coal and a less controversial management structure than the Bakrie Group headed Bumi Resources.

I live and invest in Indonesia so i should know. For US citizens and others who wish to make outsize-returns in the biggest lightly correlated to the US market, I would recommend a whole range oi Indonesian equities. Phone +62 819 4000539if interested.

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August 2, 2011 10:04 pm

are you selling a managed fund or what?

August 3, 2011 11:52 pm

here is a company that turns CO2 and natural gas into liquid fuel called gasoline, But they will never get off the ground because of Govt. regulations CABN

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