OCBC, which has Buy calls on Straits Asia Resources (SAR) and Noble, says pullback in coal prices not expected to weigh on Noble as coal accounts for only about 10% of its revenue. Notes impact on SAR's FY08 earnings also immaterial as all of its current-year sales have been contracted. Keeps $2.76 fair value on Noble, $4.80 on SAR.
SAR' FY08 earnings unlikely to be hurt even if coal prices fall further, although outlook for FY09 may be less rosy, says OCBC analyst; "for 2008, they are quite safe because they have locked in pretty much 90% of their contracts. FY09 would be a little bit of a problem since they've only got a very small percentage of coal that they've sold off." But notes, even if coal prices weaken, impact can be mitigated "partially" if production levels increase, "which I think would."
The stock has been falling, as sentiment spooked by sudden fall in coal prices in Europe. Analyst says plunge in spot prices "very strange" as demand remains strong; "it could have been a very large one-party or two-party contract being dumped all of a sudden in the market for whatever reason, causing this spill-over effect."
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Stock Strategies and Predictions
This blog is about strategies and predictions, especially on Singaporean stocks. Technical analysis and fundamental analysis, mostly TA, are applied to identify accurate and reliable buy and sell calls. Get all the info you need to make informed decisions.
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About Me
- Nostradamus
- You may be wondering why I call myself Nostradamus. First, let me tell you who he is. Nostradamus (1503-1566) made many prophecies which came true. He foretold the death of King Henry II of France in 1559. He predicted the Great fire that destroyed London in 1666. He also predicted the French Revolution, Emperor Napoleon, World War II, Hitler and the Kennedy assassinations. Like Nostradamus, I have an uncanny ability in stock predictions :-) This blog has a companion website at http://www.shareportal.biz/index.php I'm a Supreme member and regular contributor to the ShareJunction forum.
2 comments:
Credit Suisse says South East Asian coal stocks generally look oversold following selloff in past few weeks; "there is positive risk-reward equation following the recent correction."
Broker says rising production costs headwind, but gains in coal, oil spot prices suggest upside risk to FY09 benchmark coal contract assumption. Reiterates Straits Asia at Outperform with unchanged $4.10 target price. Technical indicators RSI, stochastic oscillator show stock as oversold, shares may recover more, but thin trading volume today suggests stock may struggle to clear resistance at 10-day moving average of $3.07 in near term.
Credit Suisse advises Accumlating South-East Asian coal stocks despite highlighting coal companies' short-term earnings risk on rising production costs, lack of catalyst from coal market.
Says downside risk to '08 earnings estimates is significant; adds, coal stocks' run not extending despite stronger-than-expected coal spot with NEWC closing at US$192/ton on Jul 11.
But says house's '09E benchmark assumption of coal at US$100/ton conservative in view of spot coal's, oil's continued strength; says changing benchmark assumption to US$150/ton could boost earnings estimates for companies under coverage by 47%-130%.
"We were cautious of the short-term risks to the stocks but that does not change our positive view on coal. There is positive risk-reward equation following the recent correction." Keeps Overweight on sector. Rates Bukit Asam, Indo Tambangraya Mega, Straits Asia Resources, Yanzhou Coal, China Coal at Outperform; Neutral on China Shenhua.
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