Sakari

Sakari: Very comprehensive report by DBSV. House note that the offer price is reasonably attractive. SAR currently sits on 147m tons of JORC-compliant coal reserves and 1,500m tons of coal resources. The acquisition price translates into US$12 per ton of reserve and US$1.1 per ton of resource, vs recent transactions in the coal space, the acquisition price is at the higher end of reserves multiples. In terms of P/E multiples, the price looks fair as Sakari’s near term earnings are unlikely to be strong given the dip in coal prices and increase in its mines’ cash costs. The deal values Sakari at 15.7x FY12 and 13.7x FY13 P/E, above its historical midcycle valuation range and at a healthy premium to peers current valuations. But final decision hinges on long term coal price views. The deal seems to be generally a good exit option for minority shareholders, especially given the relatively cooler supply demand dynamics in the thermal coal market currently and ongoing regulatory risks in Indonesia, which limits near term share price appreciation potential. However, investors with a bullish long-term outlook on coal prices may consider holding on to the stock for future re-rating potential as and when coal prices jump beyond US$110/ton levels again, backed by more robust global economic fundamentals