8/8/2019 20101008094516_sar081010[1]

1/6

8/8/2019 20101008094516_sar081010[1]

2/6

Company Focus

Straits Asia Resources

Page 2

The case for higher ASP assumptionsHigher coal prices if heavy rainfall continues. Output ofIndonesian coal companies under our coverage fell 10-12%q-o-q in 2Q10 as heavy rainfall disrupted mining activities.

Checks with mining contractors indicate that the wet season

continued to be wetter than usual in July and August, albeit

milder than in June. The Meteorology, Climatology and

Geophysics Agency (BMKG) forecasts the wet weather in

Sumatra and Kalimantan areas will continue until October this

year, which could disrupt coal output in 2H. Possible

production shortfall in Indonesia, if the wet weather extends

into 4Q, will support prices because of lower export supply.

Meanwhile, Australian exports YTD annualized are also 20

million tons below forecast, adding fuel to the fire.

Stronger demand and possible production shortfall could liftcoal prices in 4Q. Coal had been trading at US$90-95/ton inthe past 3 months. We expect prices to rise to US$95-US$100

in 4Q10, supported by stronger demand in anticipation of

winter season as well as rising domestic demand from new

power plants. Possible production shortfall in Indonesia will

support prices further as Indonesia contributes 30% of total

seaborne trade. We are retaining our FY10F average coal

price assumption of US$95 (YTD average US$96).

Coal Price trend in YTD 2010

Source: Bloomberg, DBS Vickers

Forward coal price indications in the market remain strong. Inrecent news, we note that Xstrata PLC has agreed to sell

around 1.2 million tons of Australian thermal coal to Tohoku

Electric Power Co (Japans 2nd

largest coal importer) for the

October 2010 to September 2011 period at USD 97.70 per

ton. This price is close to the USD 97.75 per ton Tokyo

Electric Power Co agreed to with Xstrata earlier this month.

Considering that these negotiations are considered a

benchmark price for the October-September contracts by

many traders, the completion of these contracts at prices

above current Newcastle spot price range indicates a rising

trend in coal prices over the next 12-months.

And why we still reduce earnings estimates for FY10/11Sebuku volumes in FY10 to fall short of expectations. Outputfrom Sebukus Tanah Putih pit already constrained to just

0.5m tons in 1H10 owing to low pit inventories and pit

preparation works will be further hampered by the

continuing heavy rains in Kalimantan (Indonesia) in 3Q10. We

thus believe our earlier estimate of 1.0m tons production at

Sebuku in 2H10 may have been too optimistic and reduce the

figure to 0.7m tons.

Downside risks to our FY11 Sebuku volume estimates. We arecurrently factoring in the award of final permits for SebukuNorthern Leases by end-2010 or early-2011, and production

to start by early-2Q10. Given the uncertainty associated with

that, and the delay in pit preparation works in Tanah Putih pit

owing to the heavy rains, there could be potential downside

risk to our assumption of 2.5m tons total production at

Sebuku in FY11.

This implies higher costs at Sebuku could continue into 2011.The lower than expected production, loss of man-hours, and

delay in completing the pit preparation works in 3Q10 will

lead to higher-than-expected costs in Sebuku in 2H10 and

beyond, in our opinion. Our full-year FY10 cash cost estimate

for Sebuku is thus raised from US$40/ ton to US$47/ton. We

now expect costs to average at around US$40/ton in Sebuku

in FY11, since Tanah Putih pit will continue to be constrained

even as the lower strip-ratio Northern Leases contributes to

lowering overall costs.

Jembayan costs not likely to fall much in near term. WhileJembayan mine operations have been affected to a lesser

degree by the rains than Sebuku, we do not expect a repeat

of the strong performance in 1H10, when the mine produced

4.5m tons (annualized 9m tons). We expect 8.5m tons

production for full year FY10, increasing to 9.5m tons in

FY11. The new loading facility is not expected to be up in thenear term and hence, we do not think the mine will be able

to produce at full potential in FY11. Costs will continue to

range around US$47-49/ ton, as the Company will have to

bear additional costs of alternative loading facilities until the

new loader is built.

N e w c a s t le C o a l P r i c e F O B ( U S $/ to n )

85

90

95

100

105

110

1-Jan

1-Feb

1-Mar

1-Apr

1-May

1-Jun

1-Jul

1-Aug

1-Sep

8/8/2019 20101008094516_sar081010[1]

3/6

Company Focus

Straits Asia Resources

Page 3

Valuations look fairTrading at a discount to peers is this justified? SAR iscurrently trading at 12.5x FY11 and 8.6x FY12 earnings, at aslight discount to Indonesian peers trading at an average

13.1x FY11 and 10.7x FY12 earnings. However, we believe

the discount is justified as SARs execution risks are

significantly higher, given its smaller size, and the Group has

not delivered over the last 2 quarters and is unlikely to deliver

as per expectations in 3Q10 as well, albeit partly owing to

circumstances beyond its control.

Add to it the uncertainties regarding the timing of the newmine approval that partly underpins the supercharged

growth we expect in FY11/12. If the new mine approval is

delayed beyond end-2010, we feel the market may be

disappointed again. Thus, we believe that upside potential is

still rather limited at this point of time, despite the rosyoutlook for coal prices. We maintain our HOLD call at a

revised DCF-based TP of S$2.30 (WACC revised down

to11.5% to reflect lower risk free rates in Indonesia, long

term coal price assumptions raised).

Capex commitments reduced from FY11, dividends looksecure. We would, however, like to note that SAR has a 60%dividend payout policy and projected dividend yield of 5.1%

in FY11 and 7.4% in FY12 is better than peers, and provides

downside support to the share price.

Peers Comparison Table

Company Mkt Cap(US$b) Price(Local $) PER (x) P/B P/S EV/EBITDA ROE OpgMargin2010F 2011F 2012F

Indonesia peersAdaro Energy 7.3 2050 17.5 12.8 9.6 3.7 2.5 8.1 27.8 35.0

Indo Tambangraya 5.5 43200 17.3 12.8 10.5 7.1 3.3 10.3 48.0 28.9

Batubara Bukit Asam 5.2 20250 19.4 13.6 12.0 8.6 5.7 13.4 56.2 39.7

Average 18.1 13.1 10.7 6.5 3.8 10.6 44.0 34.5

China peersChina Shenhua Energy 73.4 34.55 16.7 13.8 12.1 3.3 4.4 7.6 19.9 39.3

China Coal Energy 20.7 13.38 16.9 13.7 11.3 2.3 2.3 7.3 12.8 18.8

Yanzhou Coal Mining 13.3 20.65 15.0 12.4 10.9 2.9 3.3 8.5 14.7 26.6

Average 16.2 13.3 11.4 2.8 3.4 7.8 15.8 28.2

OthersBanpu Public Company Ltd 6.7 740 13.2 11.0 9.4 3.9 3.3 12.3 32.0 23.7

Straits Asia Resources 2.0 2.34 24.5 12.5 8.6 4.2 2.6 12.2 31.5 36.1

Source: DBS Vickers, Bloomberg

8/8/2019 20101008094516_sar081010[1]

4/6

Company Focus

Straits Asia Resources

Page 4

Income Statement (US$ m) Balance Sheet (US$ m)FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FTurnover 748 651 870 1,055 Net Fixed Assets 702 835 865 866Cost of Goods Sold (448) (462) (537) (628) Invts in Associates & JVs 0 0 0 0Gross Profit 300 189 333 427 Other LT Assets 88 83 79 74Other Opng (Exp)/Inc (58) (49) (74) (59) Cash & ST Invts 57 1 35 97Operating Profit 243 140 259 368 Inventor 32 7 8 9Other Non Opg (Exp)/Inc (1) (5) (5) (5) Debtors 98 85 114 138Associates & JV Inc 0 0 0 0 Other Current Assets 10 10 10 10Net Interest Ex /Inc 23 14 14 12 Total Assets 987 1,021 1,111 1,195Exce tional Gain/ Loss 0 0 0 0Pre-tax Profit 219 122 241 352 ST Debt 207 1 1 1Tax (85) (39) (79) (116) Other Current Liab 156 106 123 144Minority Interest 0 0 0 0 LT Debt 0 250 250 210Preference Dividend 0 0 0 1 Other LT Liabilities 152 160 168 176Net Profit 134 83 161 236 Shareholders E uit 472 505 570 664Net Profit before Except. 134 83 161 237 Minority Interests 0 0 0 0EBITDA 242 136 255 363 Total Cap. & Liab. 987 1,021 1,111 1,195Sales Gth (%) 27.9 (13.0) 33.6 21.2 Non-Cash Wkg. Capital (16) (4) 9 14EBITDA Gth (%) 23.4 (43.9) 87.6 42.6 Net Cash/(Debt) (150) (249) (216) (113)

Opg Profit Gth (%) 28.0 (42.2) 84.7 41.9Net Profit Gth (%) 7.3 (38.0) 94.8 46.1Effective Tax Rate (%) 39.0 32.0 33.0 33.0Cash Flow Statement (US$ m) Rates & RatioFY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FPre-Tax Profit 219 122 241 352 Gross Margins (%) 40.1 29.0 38.3 40.5Dep. & Amort. 13 22 24 24 Opg Profit Margin (%) 32.4 21.5 29.8 34.9Tax Paid (85) (39) (79) (116) Net Profit Margin (%) 17.8 12.7 18.5 22.3Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 31.5 16.9 30.0 38.2Chg in Wkg.Cap. (45) 42 (13) (5) ROA (%) 14.4 8.2 15.1 20.4Other Operating CF 79 0 0 0 ROCE (%) 18.9 10.9 18.3 24.2Net Operating CF 181 147 172 255 Div Pa out Ratio % 60.7 60.0 60.0 60.0Ca ital Ex . net 150 150 50 20 Net Interest Cover x 10.6 10.0 18.5 31.6Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.8 0.6 0.8 0.9Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 38.8 51.5 41.9 43.7Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 86.4 91.8 77.9 77.6Other Investing CF (4) 0 0 0 Inventory Turn (avg days) 15.3 15.2 5.1 5.1Net Investing CF (154) (150) (50) (20) Current Ratio x 0.5 1.0 1.3 1.8Div Paid 81 50 97 141 uick Ratio x 0.4 0.8 1.2 1.6Chg in Gross Debt (111) 44 0 (40) Net Debt/Equity (X) 0.3 0.5 0.4 0.2Capital Issues 26 0 0 0 Net Debt/Equity ex MI (X) 0.3 0.5 0.4 0.2Other Financing CF 1 (22) 8 8 Capex to Debt (%) 72.7 59.9 20.0 9.5Net Financing CF (165) (27) (89) (173) Z-Score X 2.5 3.3 3.7 4.2Net Cashflow 139 31 34 62 N. Cash/ Debt PS US cts. 13.3 22.1 19.1 10.1

Opg CFPS (US cts.) 20.0 9.3 16.4 23.0Free CFPS (US cts.) 2.7 (0.3) 10.8 20.8Quarterly / Interim Income Statement (US$ m) Segmental Breakdown / Key Assumptions

FY Dec 3Q2009 4Q2009 1Q2010 2Q2010 FY Dec 2009A 2010F 2011F 2012FTurnover 200 233 153 192 Revenues (US$ m)Cost of Goods Sold (128) (152) (123) (145) Coal Mining 735 651 870 1,055Gross Profit 72 81 30 47 Commodities Trading 0 0 0 0Other Oper. (Exp)/Inc (9) (28) (10) (9) Marine Engineering 13 0 0 0Operating Profit 63 53 20 38 748 651 870 1,055Other Non Opg (Exp)/Inc 0 15 1 (3)Associates & JV Inc 0 0 0 0 TotalNet Interest (Exp)/Inc (5) (5) (4) (3) Gross Profit (US$ m)Exceptional Gain/(Loss) 0 0 0 0 Coal Mining 298 189 333 427Pre-tax Profit 58 63 17 33 Commodities Tradin 0 0 0 0Tax (19) (25) (6) (9) Marine Engineering 3 0 0 0Minorit Interest 0 0 0 0 300 189 333 427Net Profit 39 38 11 23Net profit bef Except. 39 38 11 23 TotalEBITDA 63 68 22 35 Gross Profit Margins (%)

Coal Mining 40.5 29.0 38.3 40.5Sales Gth (%) 14.0 16.5 (34.1) 24.8 Commodities Trading N/A N/A N/A N/AEBITDA Gth (%) 25.5 7.0 (68.1) 63.2 Marine Engineering 20.2 N/A N/A N/AO Profit Gth % 6.1 16.2 61.7 86.2 40.1 29.0 38.3 40.5Net Profit Gth % 80.1 1.4 70.6 107.6Gross Margins (%) 36.1 34.8 19.7 24.3 TotalOpg Profit Margins (%) 31.7 22.8 13.3 19.8 Key AssumptionsNet Profit Margins (%) 19.3 16.3 7.3 12.1 Coal Price 82.1 72.6 79.0 79.4

Sales Volume 9.2 9.7 12.0 14.5Cash Cost 47.5 47.6 44.8 43.3

Source: Company, DBS Vickers

8/8/2019 20101008094516_sar081010[1]

5/6

Company Focus

Straits Asia Resources

Page 5

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)BUY (>15% total return over the next 12 months for small caps, >10% for large caps)HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)FULLY VALUED (negative total return i.e. > -10% over the next 12 months)SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg(DBSR GO). For access, please contact your DBSV salesperson.

GENERAL DISCLOSURE/DISCLAIMERThis document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS VickersSecurities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH").[This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in anyform by any means or (ii) redistributed without the prior written consent of DBSVR.]

The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty asto its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared forgeneral circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financialsituation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be takenin substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liabilitywhatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to thisdocument. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time totime have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/oremployees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to performbroking, investment banking and other banking services for these companies.

The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They arenot to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commoditiesmentioned in this report.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transactionas a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarificationon disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATIONThe research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about thecompanies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part ofhis/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of8 Oct 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in thesecurities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned

company as of 06 Oct 2010.

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registeredbroker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the mentionedcompany as of 8 Oct 2010.

3. Compensation for investment banking services:i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past

12 months, and within the next 3 months receive or intends to seek compensation for investment banking servicesfrom the mentioned company.

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in anyinvestment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing toobtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction inany security discussed in this document should contact DBSVUSA exclusively.

8/8/2019 20101008094516_sar081010[1]

6/6

Company Focus

Straits Asia Resources

Page 6

RESTRICTIONS ON DISTRIBUTIONGeneral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or

resident of or located in any locality, state, country or other jurisdiction where such distribution, publication,availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement tohold an Australian financial services licence under the Corporation Act 2001 [CA] in respect of financial servicesprovided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [MAS]under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only forwholesale investors within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed andregulated by the Hong Kong Securities and Futures Commission.

Singapore This report is being distributed in Singapore by DBSVR, which holds a Financial Advisers licence and is regulatedby the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No.198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any researchreport produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only toInstitutional Investors, Expert Investors or Accredited Investors as defined in the Securities and FuturesAct, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation ofDBSVR/DBSVS to Accredited Investors is provided pursuant to the approval by MAS of research distributionarrangements under Paragraph 11 of the First Schedule to the FAA.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in themeaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Researchdistributed in the UK is intended only for institutional clients.

Dubai/

United Arab Emirates

This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3rd

Floor,Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet theDFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to RetailClients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority.

United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person

except in compliance with any applicable U.S. laws and regulations.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only forqualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such

jurisdictions.

DBS Vickers Research (Singapore) Pte Ltd 8 Cross Street, #02-01 PWC Building, Singapore 048424Tel. 65-6533 9688

Company Regn. No. 198600295W