Sakari

Sakari: DBSV upgrades to Buy and increase TP to $2.70 from $2.20. House note that 4Q11 net profit of US$73m (up 139% yoy and 97% qoq) was significantly better than expected owing
to:
1) higher than expected production at the Sebuku Northern Leases,
2) higher blended ASP of close to US$100/ton,
3) lower than expected cash cost of US$34/ ton in Sebuku, compared to US$44/ton in 3Q11,
4) hedging gains of US$13.9m under the new risk management policy and
5) lower tax rate of 27% (30% in FY10).

FY11 net profit of US$190m (up 116% y-o-y) was SAR’s best FY result to-date. Sebuku ramp up should offset slower growth in Jembayan. The commendable 4Q results were achieved
despite lower production in Jembayan mine caused by heavy rainfall and the public bridge collapse in December, which affected traffic on the Mahakam River.

Going into 2012, operations at Jembayan will be slow and pit preparation works will imply lower production and higher costs in 1Q and 1H12, however, the slowdown at Jembayan will be more than offset by the expected ramp up at the Sebuku mine, which is progressing ahead of schedule.

House expect coal prices to remain steady at around US$115/ ton in 2012. Overall upgrade the stock to BUY, for the solid earnings execution; good earnings growth prospects and healthy 6% dividend yield in FY12. TP is raised to S$2.70, pegged to midcycle forward valuation (of blended 12x PE/ 3.5x P/BV).