Straits Asia Resources down 1.2%; worst over - OCBC

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

Straits Asia Resources (AJ1.SG) is down 1.2% at $2.39, in line with broader market weakness, after it posts 4Q revenue down 11.1% on year to US$207.3 million with net profit down 19.7% on year to US$30.5 million ($39 million), though sequentially both measures grew 12.5% and 31.5% respectively.

OCBC, which has a Buy rating but lowers its fair value to $2.74 from $2.89 (on lower USD/SGD), says FY10 earnings of US$88.2 million beat its forecast and consensus. 

“SAR has successfully navigated through what we view was a challenging 2010 with multiple headwinds ranging from falling thermal coal prices to higher production costs. We believe that the worst is over, as evidenced in the group’s sequential improvement in performance over the past two quarters. While we expect high production costs to persist owing to Indonesia’s inflation and climbing fuel costs, these should be offset by an increase in thermal coal prices coupled with higher production volumes.” 

OCBC expects the final permit for Northern Leases to be granted by 2Q11. The orderbook tips good support at current levels.