Towards Financial Freedom
SAKARI RESOURCES - Higher tax offsets wider margins
Above our expectations; sequential improvement in output to continue. 2Q12 PATMI of US$24m (-39% YoY, +66% QoQ) came in above our expectations mainly due to higher output and margins from Jembayan and other gains, partially offset by higher than expected taxes. We have fine-tuned our assumptions: (1) lowered FY12 total production volume by 3.5% to 11.1m tonnes, (2) lowered FY12 average cash costs by 3.8% to US$55.4/tonne, and (3) increased FY12 tax rate by 10ppt to 36%. Our FY12 PATMI is trimmed by 3% to US$115m. We believe sequential increases in (1) coal price, (2) production volume, and (3) earnings will act as catalysts. Maintain BUY, with lower TP of S$1.89 (from S$2.00 previously) based on 14.9x FY12 P/E, pegged to its 5 year average forward P/E.
Jembayan: better margins equate to higher profits. Jembayan's 2Q12 production was down 12% YoY to 2,069Kt (+43% QoQ). Against a backdrop of lower coal prices, SAR's focus lies on margin improvement rather than volume ramping to drive profits. This can be seen through a notable 15% QoQ fall in Jembayan's cash costs to US$57.6/tonne (-5.2% YoY). We have consequently lowered (1) our FY12 Jembayan production volume by 7% to 8.4m tonnes and (2) our Jembayan cash cost assumptions by 5% to US$60/tonne for FY12.
Sebuku production ramp up to keep its pace. Sebuku's 2Q12 production was up 138% YoY to 672Kt (+30% QoQ). With 1H12 production at 1.2m tonnes, we revise up our FY12 production volume by 8% to 2.7m tonnes as we expect sequential ramp up to continue. 2Q12 cash costs came in above expectations and were down 23% YoY to US$42.7/tonne (+1% QoQ). We have therefore raised our FY12 Sebuku cash cost assumptions by 8% to US$41/tonne.
Valuations attractive. SAR is trading at 10.7x FY12 P/E with dividend yield of 5.6% (our FY12 coal price assumption is US$102/tonne). Our TP of S$1.89 is based on 14.9x FY12 P/E, on par with its 5 year average forward P/E.
Source: OSK
Jembayan: better margins equate to higher profits. Jembayan's 2Q12 production was down 12% YoY to 2,069Kt (+43% QoQ). Against a backdrop of lower coal prices, SAR's focus lies on margin improvement rather than volume ramping to drive profits. This can be seen through a notable 15% QoQ fall in Jembayan's cash costs to US$57.6/tonne (-5.2% YoY). We have consequently lowered (1) our FY12 Jembayan production volume by 7% to 8.4m tonnes and (2) our Jembayan cash cost assumptions by 5% to US$60/tonne for FY12.
Sebuku production ramp up to keep its pace. Sebuku's 2Q12 production was up 138% YoY to 672Kt (+30% QoQ). With 1H12 production at 1.2m tonnes, we revise up our FY12 production volume by 8% to 2.7m tonnes as we expect sequential ramp up to continue. 2Q12 cash costs came in above expectations and were down 23% YoY to US$42.7/tonne (+1% QoQ). We have therefore raised our FY12 Sebuku cash cost assumptions by 8% to US$41/tonne.
Valuations attractive. SAR is trading at 10.7x FY12 P/E with dividend yield of 5.6% (our FY12 coal price assumption is US$102/tonne). Our TP of S$1.89 is based on 14.9x FY12 P/E, on par with its 5 year average forward P/E.
Source: OSK
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