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The Grand Plan

With all the recent buzz about BREN in the market, our squad of analysts decided to roll up their sleeves and dive deep into the nitty-gritty of what makes this company tick, all the way to its big-shot parent company, BRPT.

Source: Sucor Sekuritas, Company

After delving into it the numbers more, we concluded that, although current price of BREN might seem at a high premium, but it's somewhat justifiable, given the limited free float – our estimate real free float is ~1%.

However, our analyst, Andre ran a more reasonable valuation with DCF for BREN, and the EV came out at USD17 bn, which is only 30% of the intrinsic value from the current market cap.

We believe, BRPT serves as a way more affordable proxy to BREN, with a ~28% free float and liquidity as it’s also included in the MSCI index.

Therefore considering Prajogo Pangestu's impressive track record in controlling crucial resources in Indonesia- petrochemicals and energy, we're eagerly anticipating Mr. Prajogo's grand plan for the group conglomerate, BRPT.

In this grand plan, we believe BREN serves as BRPT’s cash cow, with majority ownership at 66.67%. BREN is running the biggest geothermal plants in Indonesia (and the world's third-largest), pumping out 886 MW. And they're planning to increase their capacity up to 1,200-2,000 MW by 2030- with the aim to be largest capacity in the world.

Now, why geothermal, you ask? As many know by now, Indonesia is sitting on a goldmine of geothermal resources. Out of the 24 GW of geothermal potential, only ~10% is currently tapped for electricity generation.

That means there's a massive opportunity for both international and domestic investors to step in and assist the government in unlocking the full potential of geothermal energy in Indonesia.

Moreover considering Indonesia’s commitment to attain net-zero emissions by 2060, it urgently requires expanded use of renewable energy.

Under the updated Paris agreement NDC in September 2022, Indonesia has increased the ambitious climate goal of reducing carbon emissions to 32% by 2030, or 43% with international support.

Source: MEMR’s Power and Utility Strategies Draft

Last year, a presidential decree pledged a new tariff and incentive scheme to enhance the economics of geothermal energy. While details are pending, the direction is clear — energy transformation is inevitable and must be realized soon.

Getting into geothermal exploration requires a substantial upfront investment, a lengthy establishment period, and comes with high risk of failure, making it challenging for newcomers to dive into the game.

Developing brownfields projects needs a cool USD 2.6 mn/MW, while greenfields projects are even steeper, ranging from USD 7-8 mn/MW. Just for context, that's like ten times more than what you'd shell out for a coal-generated power plant!

So, snagging the established facilities in Salak and Darajat from Chevron back in 2013 was a calculated strategic move!

Source: Barito Pacific, Sucor Sekuritas

BREN's growth strategy is a mix of doing things in-house and acquiring existing projects. They're not just sticking to geothermal either; they've recently jumped into the wind energy game by acquiring Barito Wind Energy (BWE).

Being the big player in Indonesia's renewable energy scene, BREN's got a steady cash flow going. Thanks to PLN contracts holding up until 2039, they've got a guaranteed 95% of their capacity absorbed. On top of their predictable net profit margin, with revenue in dollars, they're shielded from rupiah wobbles and high U.S. inflation.

Source: Barito Pacific, Sucor Sekuritas

It’s worth considering that BRPT serves as an unquestionably more economical alternative, boasting a higher floating rate and increased liquidity- it's not an opportunity to be overlooked. It's crucial to highlight that this group holds crucial resources in Indonesia and remains committed to robust expansion plans.

Source: Barito Pacific, Sucor Sekuritas

Even when we maintain a conservative stance, after factoring in a 30% discount for BRPT as the holding company, the potential upside still stands at a significant 70%!

Read our full report here:

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