Mitrabahtera Segara Sejati

For those of you who are already familiar with my style of investing, you probably already know the reason why I discuss about this stock. Yep, Mitrabahtera Segara Sejati (MBSS) is too good to be ignored because of its low valuation, ie PER 4.4 and PBV of 0.7 times at a price of Rp1,050 per share, while there is nothing wrong with the company’s financial performance. Until the full year 2013, MBSS had a net profit of US$ 39 million, representing a return on equity (ROE) of 16.3%, while its equity grew 14.4%. Outlook for the future? Well, also no problemo.

MBSS is a shipping company that offers integrated logistics services for coal mining companies. The company has tens of barge vessel, tug boats, floating cranes, to support vessel. MBSS also has a typical ship to transport cement, with Holcim Indonesia (SMCB) as one of its regulars. MBSS has been established since 1994, and since 2011 became a subsidiary of Indika Energy (INDY). In 2013, 20% of company revenue comes from fellow subsidiaries of INDY, in this case PT Kideco Jaya Agung, while the rest comes from third parties. MBSS is one of the major logistics service provider for the largest coal companies in the country, such as Adaro, Kaltim Prima Coal, Berau Coal, and Borneo Indo Bara.

One interesting point of coal transportation business that is undertaken by MBSS is its large profit margin. In 2013, of the company's revenue of US$ 151 million, the biggest costs were fuel and depreciation amounting US$ 50 million, while the other costs are fairly small, and as a result the company could obtained net profits of US$ 39 million, so the margin reached 26.1%. This large margin remind me that rental business, whether it be rental of vessel or others, is profitable, because we are selling a service, not a product. For example, if you pay attention to the performance of telecom tower leasing companies, like Tower Bersama Infrastructure (TBIG) and others, they also have a large profit margin. On the other hand, the value of shrinkage that occurs on the ship is not large at all, where the ships belonging to MBSS can still be used to the next dozen years.

MBSS growth in the last two years is also fairly impressive, especially considering the condition of the coal industry that was being sluggish. At the end of 2011, net asset of the company was US$ 178 million, and in 2013 grew to US$ 236 million, or an increase of 32.6% in two years, when in fact the coal sector had through rough times in the period of 2011 - 2013. For the future, MBSS still holds coal logistics contract worth about US$ 250 million, with the assumption that the company did not obtain new contracts during the year 2013. As a result, the company's revenue for 2014 is certainly still safe.

Then, the above already mentioned that this MBSS was interesting because its valuations are very low in terms of PER and PBV. Including, when seen from the company’s dividends paid in 2013 which amounted to Rp50 per share, then its dividend yield was almost 5%, whereas MBSS only paid 22% of its net profits as dividends. For this year, the company will pay dividends at least at the same amount, because its profits were still rising.

Other facts that may need to consider is that in the year 2012, INDY has spent US$ 140 million or about Rp1.4 trillion to acquire 51% stake in the MBSS, or equivalent to Rp1,630 per share, aka much higher than the current market price at Rp1,050 per share. Has INDY made wrong decision? I don’t know, but clearly on the share price of 1,630, MBSS’ PBV at this point is 1.1 times, and it's still relatively low if we consider the track record of MBSS’ annual profits which reached an average of 15 - 20% of in net capital (in 2009 even had 35%).

So assuming that in 2014, MBSS will have earnings at least equal to its current (this is a conservative assumption, assuming that the coal sector will remain sluggish as it is now), then the equity of MBSS will grow about 15% to US$ 280 million. As a result, the real value of 51% stake in MBSS held by INDY will become US$ 143 million, or equivalent to Rp1,760 per share, so it could be said that INDY will have its turnover next year. By the way remember that we are talking about the value of the company here, in this case the value of net assets of MBSS, and not about the market price of the stock.

And this very day, you as an investor can buy  MBSS in the market at a price of Rp1,050 only! So what d'ya think?

Such like its sister and parent company, Petrosea (PTRO) and INDY, the shares of Indika Group has dropped steadily in the past two years. However, when compared with the financial performance of INDY that is completely destroyed by the decline in coal prices plus its large debt, including PTRO also experienced a considerable drop in its profits in two years, then the performance of MBSS has still going well. MBSS also have debt but at reasonable amount, which bears interest of only 5 - 6% per year. I don’t know how could MBSS get such cheap loans, but clearly the interest expense to be paid by the company is very small and barely disturbing the net profit.

But like most other stocks which traded at their low prices, MBSS is illiquid, so if you are interested then you have to buy it in installments. Target price? Let's see if it can rise up to 1,760 like said above, but as usual, do not expect that MBSS will immediately rise to that position on tomorrow, next week, or next month, but usually takes a long time, including can dropped first (who knows?). However, believe it or not, this is actually good because it give us enough time for the installments before it is actually rising. It's useless, of couse, if this MBSS immediately rise when we have only 10 lots of it, is not it?

PT. Mitrabahtera Segara Sejati, Tbk. (MBSS)

Rating of Performance in 2013: A

Rating of Stock at 1,050: AA