Sakari Resources

CIMB Research on 27 Aug 2012

Major shareholder PTT has launched an offer for Sakari Resources (SAR) at S$1.90 per share. We deem this an attractive exit opportunity for shareholders as weak earnings prospects imply prolonged share price sluggishness if not for this offer.

The offer price is attractive, representing a 28 per cent premium over Friday's close and 9 per cent premium over SAR's 52-week volume weighted average price.

We advocate accepting the offer and expect the share price to rise to S$1.90 once trading resumes.

We align our target price to the offer price as we do not anticipate a competing bid. Maintain "underperform".

PTT Mining (a wholly owned subsidiary of PTT International, a Thai energy conglomerate) which owns 45 per cent of SAR, has offered to buy the outstanding shares of SAR for S$1.90 per share.

PTT plans to delist SAR if it can successfully acquire at least 90 per cent of free float.

The offer price is fair, translating into 15x CY2012 PE vs the stock's 14x historical average since its 2006 listing.

The offer price is also generous compared to our previous S$1.00 target price (9x CY2013 P/E, one standard deviation below its three-year mean).

We deem this an attractive exit opportunity as poor earnings prospects imply few re-rating catalysts in the medium term if not for this offer.

Faced with falling average selling prices and persistent cost pressure, SAR's profits and dividends are expected to decline in FY2013. The share price has already fallen 44 per cent over the last six months, reflecting poor fundamentals.

Accept the offer. The offer presents an attractive exit opportunity in the absence of fundamentally-driven catalysts. We do not foresee a competing bid given that PTT already owns 45 per cent of SAR.

UNDERPERFORM