Coal stocks

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."