Straits Asia

Straits Asia: Announced strong set of 1Q11 results, at the high end of analysts’ estimates. Rev at US$213.7m, +39% YoY and +3.1% QoQ, while Net Profit at US$41.4m, +269% YoY and +35.4% QoQ. Strong performance attributed to increased coal production and slight increase in ASP, as grp’s both mines increased production, assisted by lower then average rainfall. ASP at $82.16/ton, +14.7% YoY and +8.7% QoQ, but way below international prices of US$115-144/ton throughout 1Q11….

Gross Profit Margins for 1Q11 expanded to 34% vs 20% YoY as cash costs / ton fell on back of improved contract rates from PAMA, and lower strip ratios in both mines. Topping off a very successful qtr, the new line 2 load-out at Jembayan loaded its first coal barges at end of Mar, which will mitigate effects of cost pushes in other areas of operations as the line ramps up and the use of temporary load out facilities is discontinued....

Moving forward, grp remains upbeat on prospects with Jembayan mines tipped to reach another yr of record production in FY11, with positive progress towards the issue of licence for the Northern Leases at Sebuku. Cash costs of mining are however expected to increase due to expected higher fuel prices and increase in Jembayan’s strip ratio to its annual target. Coal prices will still be driven mainly by import demands from India and China and are expected to remain at or about current levels.

We note that at current price valuations are undemanding, with grp trading at an annualized 14.1x FY11E P/E vs its historical average of 24x. Macquarie maintain O/P with $3.40 TP, UBS maintains Buy with $3.40 TP, while Goldman Sachs maintains Convited Sell Call with $2.00 TP, despite stellar qtr performance.