Friday, September 30, 2011

Regional Coal/Sakari

Regional Coal/Sakari: Macquarie has sector report. Note that thermal coal defying the odds and upgrades seaborne thermal forecasts by 5-15% to US$115/t (JY12) and US$130/t (JY13), due to growing confidence in China over the next 6 mths. House raise 2012/13 forecasts by 3% and 8% on the back of higher coal price assumptions, leading to the sector trading on 6-7x P/E in 2012/13E vs an historical trading range 12-13x PER.

House has preference for more liquid stocks like SAR and Harum Energy.
Note that Sakari share price correction has been overdone as it is on 4-5x P/E in 2012E and implies an US$85/t coal price in 2012 vs the coal futures curve of US $120-125. See 4Q11 results as a catalyst, as the market is underestimating the ‘triple kicker’ of higher Sebuku production, ASP and lower costs from the Northern leases, which lead house to be 18% above 2012 consensus.

Continues to like Harum given its 28% 3-year production CAGR, exploration upside and attractive valuation trading on 7x P/E 2011E, supported by a net cash position balance sheet position. Adaro: out of top picks in the past 12 mths as it struggled to achieve 80mt organically.

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