From Credit Suisse:-
We are revising our 2008-10E earnings estimates lower by 3% on the assumption of higher oil price in our model.
◠We have revised the oil price estimate in our model to US$90/bbl (previously US$72.50/bbl) in line with our Global Oil team’s estimate and is also closer to YTD average WTI spot of US$103.
◠High oil present short term earnings risk, particularly in 2008, as bulk of SAR’s 2008 coal pricing has been locked-in. Our earnings
estimate change by about 1.7% for every US$10/bbl change in oil.
◠Diesel/marine fuel oil cost exposure of Jembayan’s barging operations (approx. US$8/t or 25% of Jembayan’s unit cost) is not fully captured in our estimates and presents further downside risk.
â— Higher oil price could also lead to higher coal price in the long run. Our base case estimates assume benchmark coal of US$100/t in
2009-10E, down from US$120/t in 08E. Our 2009-10E earnings change by 9% for every US$5/t change in benchmark assumption.
From Credit Suisse:-
â— Lower EPS and stronger Singapore dollar lower our TP to S$4.50 (from S$4.70) based on 12x 09E EPS.
Maintain OUTPERFORM.
Profit estimates trimmed on higher fuel cost estimate
We are revising our 2008-10E earnings estimate for Straits Asia lower by approximately 3% on assumption of higher oil price in our model. Our oil price assumption is now US$90/bbl for the forecast period (previously US$72.50/bbl). Every US$10/bbl change in average oil price results in about 1.7% change in our earnings estimates (Fig 1).
In the short-term, particularly for 2008, rising oil price present a negative risk to our earnings estimates as majority of SAR’s 2008 coal price has been locked-in. Higher diesel cost Jembayan’s barging operations (approx. US$8/t of cost for that mine) is not fully captured in our model and presents further downside risk to our estimates.