UNDERPERFORM Maintained
S$3.06 Target: S$3.29
Mkt.Cap: S$3,470m/US$2,885m
Coal Mining
• In line; maintain Underperform. 2Q11 net profit of US$38.9m (+67.5% yoy, -5.9% qoq) meets expectations at 25% of our FY11 estimate. 1H11 earnings of US$80.3m (+133.2% yoy) form 51% of our forecast (US$156m) and 49% of consensus (US$163m). Revenue and margins were spurred by higher thermal coal prices in 2Q11, partially offset by lower volumes and higher unit costs. An interim dividend of 4.24 UScts has been declared. We are keeping our estimates and S$3.29 target price (DDM-based, discount rate 9.8%). We believe growth expectations are in the price and foresee de-rating catalysts from production shortfalls and lofty valuations vs. its Indonesian peers (12.5x CY12 P/E vs. 11.3x average).
• Sequentially weaker on higher costs, lower volumes. While 2Q11 was stronger than 2Q10, margins and profits were weaker vs. 1Q11 due to higher costs (+31% qoq) and lower volumes (-8% qoq). Management expects high production costs to persist in 3Q11 on higher strip ratios, escalating fuel costs and wage inflation in Indonesia.
• Tall expectations factored in, leaving risks of disappointment. Our projections imply ASPs of US$90/tonne for FY11, higher than the US$88 booked in 1H11. We believe consensus estimates have factored in growth expectations from Northern Leases, whose contributions are expected to come on stream in 4Q11. Given such tall expectations, there may be risks of negative earnings surprises or execution delays.
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