Barito Renewables Energy

1. 01Spend the capital first, for decades of steam

   A geothermal business drills wells and builds power plants years before it earns anything, then runs them for a very long time. The balance sheet shows the shape: USD 3,867.4 M of total assets producing USD 605.2 M of revenue, so asset turnover is 0.156×. Star Energy Geothermal’s installed capacity is 901.5 MW across Salak, Darajat and Wayang Windu.

   EconomicsHold on to that 0.156×, because it is half of the answer to how this company can look spectacular and earn ordinary returns at the same time. Every rupiah of assets here generates only about 16 cents of annual revenue. The retailer AMRT turns its assets 2.98× a year; a geothermal field needs more than six years of revenue to equal its own asset base. And this is a property of the category, not a defect of this company: the toll-road operator JSMR runs 0.187× and the tower business TOWR 0.172×. Infrastructure always looks like this.

2. 02Sell contracted electricity in dollars

   Output is sold under long-term power purchase agreements denominated in US dollars, which is why the company reports in USD and why the figures on this page are converted at a cited rate (Rp18,058 per USD, Bank Indonesia JISDOR reference rate). Revenue rose every single year: USD 537.4 M, 569.8 M, 594.9 M, 596.8 M, 605.2 M.

   EconomicsThere is no fuel cost and no commodity price to guess, so cash operating costs are only about 28% of revenue and the EBITDA margin sat between 80% and 82% in all five years. This is one of the most bond-like income statements in the roster, and that stability is a genuine, valuable quality. It is also the reason a low discount rate is defensible here: the engine’s WACC for BREN is 7.53%, and a dollar risk-free rate of 4.66% plus a beta below 0.5 is what produces it.

3. 03Then join the queue for that margin

   FY2025 operating profit was USD 433.0 M. Interest took USD 118.1 M on USD 2,064.4 M of debt. Tax and the minority partners in the project companies took a further USD 182.7 M. Owners were left with USD 132.2 M. Non-controlling interests hold USD 246.7 M of the USD 883.5 M of consolidated equity, roughly 28%.

   EconomicsSay it as fractions of every dollar of operating profit: 27 cents to lenders, 42 cents to tax and minority partners, 31 cents to shareholders. THAT is why a 71.5% operating margin arrives as a 21.8% net margin. The filed statements let you split that middle claim: in the most recently filed quarter, income tax alone took 42% of profit before tax, and of the profit left after tax, non-controlling interests took a further 18%. Neither is unusual for Indonesian geothermal, where the tax terms are set in the contract and the project companies have partners. When you read a spectacular margin anywhere, always ask who stands between it and you.

4. 04Do the multiplication that actually decides returns

   Return on capital is margin multiplied by capital turnover. Here: an EBIT margin of 71.5% times an asset turnover of 0.156× equals an 11.2% pre-tax return on assets. Put the tax-and-minorities wedge through it and owners’ return on assets is 3.4%; measured against invested capital rather than total assets, ROIC is 6.4%. The five-year series is 4.6%, 4.9%, 6.5%, 6.6%, 6.4%.

   EconomicsCompare that 6.4% with the 7.98% cost of the capital employed and you have the central fact about BREN as a business: on the record, the asset has not yet earned what its funding costs, in any of the five years. This is the most important habit on this page. A high margin is not a high return, and only the multiplication tells you which one you are looking at.

5. 05Grow the only way this business can, by building more

   Capex went USD 20.3 M (FY2023) → 116.0 M → 132.1 M, which is 2.29× depreciation, while operating cash flow stayed in a USD 227 M to 268 M band. Free cash flow therefore fell USD 206.9 M → 96.3 M and cash on hand fell USD 203.3 M → 115.0 M. Company targets are 1 GW of installed capacity by 2026 and 2.3 GW by 2032, from 901.5 MW today.

   EconomicsFalling free cash flow is not automatically bad news, and this is the distinction worth learning: FCF can fall because a business is decaying or because it is investing, and the two look identical on a single line. Capex at 2.29× depreciation says investing. The question that follows is the only one that matters for a shareholder: will the new megawatts earn more than 7.98%, when the existing ones earn 6.4%?

Cost structureThere is no cost-of-sales line here, and that is a presentation fact rather than a missing number, so it is worth knowing exactly why the gross-margin row on this page is blank. BREN files its consolidated profit and loss BY NATURE OF EXPENSE, which International standards permit: the statement runs Revenue, then depreciation and amortisation, employee compensation and benefits, consultant and technician expenses, a production allowance paid to PT Pertamina Geothermal Energy, finance costs, foreign-exchange movements, interest income and other net items, straight down to profit before tax. There is no cost of sales and no gross-profit subtotal anywhere in it. So a gross margin cannot be computed, and if one were manufactured by lumping those operating lines together it would simply restate the 71.5% operating margin, because no separate selling-and-administrative layer exists to sit between them. Read the operating and EBITDA margins instead, which is what the ratio table now says in place of the blank. What the money actually goes on: total operating cost is USD 172.2 M against USD 605.2 M of revenue, and depreciation alone is USD 57.6 M of that, a third of the total and up from USD 26.6 M in FY2021 as new plant is commissioned. The remaining cash operating cost is roughly USD 114.6 M, about 19% of revenue, spread across the people, contractor and production-allowance lines named above. Below the operating line, interest takes USD 118.1 M, more than twice depreciation, and tax and minority partners take more again. That is the real shape of this business: trivial variable cost, and a capital structure that decides the outcome.

Cash cycleSteam in, contracted dollars out, and the cash then splits three ways before it reaches an owner. Operating cash flow is remarkably steady (USD 234.9 M, 237.4 M, 227.2 M, 268.4 M, 228.4 M) and it comfortably exceeds reported profit every year, which tells you the earnings are cash-backed rather than accounting-led. From that cash, interest takes USD 118.1 M, capex now takes USD 132.1 M, and the residual is small: free cash flow of USD 96.3 M against a market capitalisation of Rp448.2tn is a free-cash-flow yield of 0.39%. Working capital is not the story here, as it is for a retailer or a manufacturer; the cycle that matters is the multi-year one between spending on a well and collecting tariff revenue from it.

Unit economicsThe entire company fits in one chain of three numbers. Per dollar of assets: 15.6 cents of revenue. Per dollar of revenue: 71.5 cents of operating profit. Per dollar of operating profit: 31 cents reaches the owner. Multiply the three and you get about 3.5 cents of owner profit per dollar of assets, which is the 3.4% return on assets the ratio table reports. Nothing about this arithmetic is unusual for infrastructure, and none of it is a criticism of the asset, which is excellent. It is simply the difference between owning a magnificent machine and earning a magnificent return on the price you paid for it.

The accounting is clean, and the composition of the growth is the thing to understand. Clean first: operating cash flow exceeded net income in every year of the window by 1.73× to 2.73×, depreciation is rising rather than being stretched (USD 26.6 M → 57.6 M), and where a cost line genuinely does not exist in the source statements the ratio table leaves it blank instead of manufacturing a 100% gross margin. Now the composition. Net income rose 23% between FY2023 and FY2025 while operating profit FELL 2.2%, so the entire improvement came from below EBIT: interest expense eased from USD 134.9 M to 118.1 M, and the combined tax-and-minorities wedge on pretax profit narrowed from 65% to 58%. Both are real and both are welcome, but neither is the operating business getting better, and neither can repeat indefinitely. One comparability trap: FY2022 shows a 47.6% ROE that no one should quote as an achievement. Equity fell from USD 982.8 M to USD 435.0 M that year while debt rose about USD 490 M, so the ratio is a shrunken denominator rather than a good year, and EBIT rose only 6.3%. These figures do not show why the equity moved, so treat FY2022 as a structural break and verify it in the statement of changes in equity.

Cash conversionExcellent at the top, thin at the bottom, and both facts matter. Operating cash flow beat net income by 2.73×, 2.61×, 2.12×, 2.20× and 1.73× across the five years, which is what a contracted asset with heavy non-cash depreciation should look like. But after interest of USD 118.1 M and capex of USD 132.1 M, free cash flow is USD 96.3 M, down from USD 206.9 M in FY2023, and the balance sheet absorbed the difference: cash fell USD 203.3 M → 115.0 M and the current ratio 3.80 → 1.73. So the cash generation is high quality, and it is currently fully committed.

An unambiguous builder, funding growth out of its own cash flow rather than new debt or new shares. Capex is 6.5× its FY2023 level and runs at 2.29× depreciation; total debt actually fell slightly (USD 2,104.2 M → 2,064.4 M); and the cash balance, not the lenders, absorbed the difference. Owners’ equity was rebuilt from USD 191.5 M after the FY2022 break to USD 636.9 M through retained profit, with dividends kept token (a 0.12% yield at the current price). All of that is coherent and disciplined behaviour. The judgement rests entirely on one unresolved question: the capital already in the ground earns 6.4% against a cost of 7.98%, so unless the new megawatts earn materially more than the old ones, building faster compounds the shortfall rather than curing it.

DeploymentFive years of cash, in order of size. Into the ground: capex USD 48.1 M, 26.8 M, 20.3 M, 116.0 M, 132.1 M, cumulatively USD 343.3 M, with the last two years accounting for 72% of it. To lenders: interest of USD 86.2 M, 85.1 M, 134.9 M, 134.0 M, 118.1 M while the debt stock ended roughly where FY2022 left it. To shareholders: almost nothing, a 0.12% dividend yield. Funded by: operating cash flow of USD 1,196.3 M cumulatively, supplemented in the last two years by drawing cash down USD 203.3 M → 115.0 M. No equity was raised and no leverage was added to pay for the build, which is the cleanest possible way to fund it.

Returns trendROIC 4.6%, 4.9%, 6.5%, 6.6%, 6.4% against a WACC of 7.53% (a 4.66% US-dollar risk-free rate, because the company reports in dollars, plus a relevered beta of 0.482 on a 6.69% equity risk premium, giving a cost of equity of 7.89%,blended with a 5.72% cost of debt taken as FY2025 interest over total debt). Read the trend fairly in both directions. The gap has narrowed from about 340 basis points to about 160, which is real progress and the strongest fact in the bull case. But it has been a gap in every one of the five years, and closing the last 160bp requires the new capacity to earn better than the existing base. Now the price. At Rp3,350 the shares trade on 187.7× earnings, 39.0× book, 55.1× EV/EBITDA and a 0.39% free-cash-flow yield. The reverse DCF is the cleanest way to see what that demands: to justify the price, free cash flow would have to compound at about 48.8% a year across the explicit horizon. Delivered free cash flow over the last four years compounded at MINUS 15.3%, an expectation gap of 64 percentage points. The forward DCF prints Rp4.22 a share on its default inputs, and that figure should NOT be read as a fair value, for a reason worth understanding because it teaches how to audit any model. Its tax input is 58.0%, derived as one minus net income over pretax profit. For a group like this one that wedge is not a tax rate: it also swallows the minority partners’ share of profit, and those minorities are then subtracted a second time as USD 246.7 M when enterprise value is converted to equity. The filed statements put the actual income-tax charge at 42.3% of pretax profit. Feed that in and the value becomes about Rp150; use the delivered 71.5% EBIT margin instead of the normalised 60% and it is about Rp250; add a steady-state capex assumption (capex equal to depreciation rather than today’s expansion rate held forever) and it is about Rp360. The give-away that the default stack is too harsh is a cross-check: it implies an enterprise value of 4.5× EBITDA, BELOW the 4.85× that MEDC, the cheapest name in this industry, actually trades at. Three conservative choices stacked on a thin equity residual sitting above USD 2.2 bn of debt and minorities will always compound into something near zero. Use the sliders and watch how fast it moves. The relative view says the same thing more simply: 55.1× EV/EBITDA against an industry median of 7.2×, a 666% premium, and PGEO, which runs the same geothermal technology in the same country, sits at 7.2×.