Sakari

Sakari: Announced 2Q12 results which were below estimates, despite grp registering better QoQ performance vs its dismal 1Q12 results. Rev at $238m was flat YOY and +26% QOQ, while Net Profit at $23.9m, -39% YOY and +66% QoQ. Gross margins remained weak at 23% vs 29% YOY and 20% QOQ. Sales vol increased slightly at 2,693 kt, +8.7% YOY and +33.69% QOQ, while ASP remained flat QOQ at US$94.5/ton. Muted rev due to global coal prices which fell 15% from $114/t in 1Q12 to $96/t in 2Q12. During the qtr, Sakari concluded a number of fixed-price contracts for both Sebuku and Jembayan in line with Jap fiscal year benchmark prices and has concluded pricing on approximately 80% of its target 2012 production and is maintaining its guidance ASP of $85-90/t for 2012 despite weak international coal prices. Sebuku continues to ramp its production, with an increase of 30% in production over the previous qtr at 672Kt, +138% YOY and +39.7% QOQ. Sakari has upgraded its target production for Sebuku in 2012 to at least 2.5Mt as the production profile continues to increase. Add that further progress has been made in the Northern Leases’ with new mining fleet arriving on schedule and Sebuku’s Steady states production rate is expected to be at 4-4.5mtpa over the next 18-24 mths. In Jembayan, production at 2.1MT, -12% YOY but increased 46% QOQ as stripping ratios improved QOQ, with a cash cost reduction of $57.6/ton, less $10/t vs 1Q12. Savings of this magnitude, which are spread across the entire production volume, substantially outweigh the rewards that would have been achieved by following Jembayan’s original 2012 plan that envisaged higher production volumes but also at higher costs. At current price, grp trades at an annualized 14.5x FY12E P/E and an interim div of US 2c has been declared. Technically, near-term support on stock could be found at $1.16 TP (Year low) Ratings as follow: CIMB maintains Underperform with $1.00 TP DMG maintains Buy with $2.00 TP