Company Name: STRAITS ASIA RESOURCES LIMITED
Research House: OCBC
OCBC Investment Research has raised its target price on Singapore coal miner Straits Asia Resources (STRL.SI) to $2.91 from $2.74 and maintained its buy rating.
OCBC had raised its estimate on the average selling price of coal to US$90 ($113) per tonne from US$82.50 per ton for Straits Asia's 2011 financial year, helped by strong demand in Asia and supply disruptions in Australia following floods earlier this year.
The brokerage said it increased its 2011 net profit forecast by 28% to US$150 million as Straits Asia, being a pure-play thermal coal miner, stands to benefit from rising coal prices.
In the aftermath of Japan's recent nuclear incident, growing aversion towards nuclear energy may fuel demand for alternative energy resources including thermal coal in the long run, OCBC added.
However, it said a key near term risk is the escalating price of oil as a result of the continued uncertainty in the Middle East. Fuel accounts for 30-35% of Straits Asia's production costs, OCBC said.
But the brokerage said the increase in average selling prices should more than offset the cost pressures, signalling stronger profit margins.
At 9:40 a.m., Straits Asia shares were up 1.15% at $2.63 on a volume of 820,000 shares.
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