Please find attached our inititiation report on Mitra Rajasa (MIRA). *Well-Oiled Transporter*
· *Coverage initiated with Buy and TP of Rp1,375 * We initiate our coverage of Mitra Rajasa (MIRA), a land transportation and oil & gas supporting company. We believe there is sizable upside potential in the share price from both valuation and earnings growth on the acquisition of Apexindo, Indonesian drilling company. The upcoming earnings consolidation will serve as the primary catalyst for the share price. Our 12-month DCF-based target price of Rp1,375 reflects this factor, and hence our Buy recommendation with potential upside of 94%. · *Solid earnings outlook* We forecast MIRA will deliver strong earnings CAGR of 32 % over the next three years (2008F-2010F). Specifically, for 2008, we expect the consolidation of APEX's earning during Aug-Dec will drive ten-fold growth in earnings. We forecast this will continue in 2009 onward as MIRA will start to fully consolidate APEX's earnings. Multi-year contracts for rigs and FPSO point to strong visibility of earnings. · *The acquisition story to continue * MIRA expects to take delivery of its second FPSO by 2010 with oil production capacity of 40k bbl/day, double its first FPSO capacity of 20k bbl/day. The management also intends to further expand its drilling business (APEX) by acquiring additional rigs in the future. We take into account the second FPSO into our earnings forecast but has yet to include earnings from additional rigs. · *Medium-term highly geared * We expect the company will enter highly geared days in 2008-2009 as it intends to finance the US$565mn acquisition via loan, CB and guaranteed notes. We expect company's net gearing will increase from 0.5x in 2007 to 2.5x in 2008 before falling to 0.9x in 2009. We estimate the company will use strong cash generation, dividend from subsidiaries and rights issue as de-gearing efforts · *Valuation and target price* We use a DCF valuation method to value MIRA. We have assumed a WACC of 14.25 % and a conservative terminal EV/EBITDA of 4x for our DCF valuation to arrive at our target price of Rp1,375. We think the market has yet to factor in the full acquisition effect, as, on our numbers, MIRA's shares is now trading at a 46% discount to it peers valuation on 2009-PER basis. Best regards, *Arief Budiman* Equity Analyst
