SEA Coal Sector - Catalysts are stronger 2H11 earnings and rising coal prices, not 2Q11 results - Credit Suisse

œ We see small changes in QoQ profit for most coal companies in 2Q11 before earnings recovery to become more significant in 2H11 when output rises during the dry season in 3Q. For 2Q11, ASPs could surprise on the upside, which might lead to companies providing higher guidance for their FY11 ASP.

œ A significant improvement in earnings is expected in 2H11 driven by both prices and volume (higher production in dry season in 3Q). Improving earnings momentum and rising benchmark coal prices are expected to be the share price catalysts for the sector in the next six months.

œ We cut our FY11 earnings forecast by 7% for BORN with a 4% cut in ASP given the weakness in coking coal price. For INDY, we cut our FY11E profit by 11% on higher cost assumption. We maintain our profit forecasts for ADRO, HRUM, BANPU, SAR and PTBA.

œ We expect short-term share price weakness for INDY and BORN on the back of weak 2Q11. We see the weakness in share price of INDY as a buying opportunity due to its planned listing of Petroseas in August/September.