StraitsAsia - Straits Asia Resources lowered to Fair Value by OCBC

Stock Name: StraitsAsia
Company Name: STRAITS ASIA RESOURCES LIMITED
Research House: OCBC

OCBC lowers Straits Asia Resources (AJ1.SG) fair value estimate to $2.89 from $3.13; it says while SAR is a beneficiary of strengthening coal prices, “we caution against over exuberance as oil prices have also been climbing, and this could crimp the group’s profit margins given that fuel costs account for 30%-35% of its production costs.”

The house raises its cost estimates to allow for higher fuel costs, also trims production forecasts in the absence of updates regarding the group’s Pinjam Pakai mining permits, which were previously expected by end-2010.



Nevertheless, OCBC keeps its Buy rating, “as we expect SAR’s FY11 earnings to improve over FY10. In addition, structural shortages in physical coal supplies should boost sentiment surrounding coal producers whose operations are less affected by adverse weather conditions.” Shares are flat at $2.59.