Sakari Resources

OCBC on 2 May 2012

Sakari Resources Limited (SRL) reported 1Q12 revenue slumping 16% YoY to US$188.8m, or just 17% of our full-year forecast, mainly due to sharply lower coal production volume. Net profit tumbled 65% YoY to US$14.5m, meeting just 7% of our FY12 estimate. But management notes that there were several operational factors which affect its performance and things should start to normalise over the year. As such, it remains relatively confident that it can post a recovery from 2Q12 onwards. But we still need to cut our FY12 estimates for revenue by 11% and earnings by 41% (FY13 by 4% and 17% respectively). This in turn lowers our DCF-based fair value to S$2.29. But in view of the likely improvement from 2Q12 onwards, we maintain our BUY rating.

Dismal 1Q12 results
Sakari Resources Limited (SRL) reported a dismal set of 1Q12 results, with revenue slumping 16% YoY and 40% QoQ to US$188.8m, meeting just 17% of our full-year forecast, mainly due to sharply lower coal production volume. Coal production fell 30% YoY and 19% QoQ, hit by bad weather conditions at Jembayan. And also because of higher fuel cost and poorer strip ratios, net profit tumbled 65% YoY and 80% QoQ to US$14.5m, meeting just 7% of our FY12 estimate. But management noted that the quarter also included several one-off items amounting to nearly US$7.5m.

Things should start recovering from 2Q12
And because of the continued bad weather at Jembayan, SRL also brought forward the opening of two new pits there, resulting in higher cash costs (US$67.5/ton) in the quarter. But management believes that Jembayan is set to return to more normal operating metrics over the year. As such, it remains confident that it can achieve a cash cost of low- to mid-US$60/ton this year with an expected output of 9m tons of coal. On the other hand, the Sebuku mine has performed in line with all targets in 1Q12, with cash costs hovering around US$42.5/ton; and this should ease towards US$40/ton this year on an expected production volume of 2.5m tons. On the pricing front, management believes that coal prices are close to reaching a floor at around US$100/ton; and continues to expect its ASPs to hover around US$85-90/ton for this year.

Maintain BUY with lower S$2.29 fair value
Incorporating the latest developments, we cut our FY12 estimates for revenue by 11% and earnings by 41% (FY13 by 4% and 17% respectively). This in turn lowers our DCF-based fair value to S$2.29. But in view of the likely improvement from 2Q12 onwards, we maintain our BUY rating.