CIMB Coal Mining Sector Note - Prices trending up

We remain Neutral on the Indonesian coal sector although we have upgraded bargains in the sector, following lower coal price assumptions for FY09-10 but higher forecasts for FY11-12. We now expect an uptrend from FY09, peaking in FY11-12, driven by a China-led global demand recovery and another potential supply crunch in FY11-12. Our coal price revisions have lowered our FY09-10 EPS estimates for coal companies by 6-25%, but raised FY11-12 estimates by 25-35%. We have also adjusted WACC assumptions for some stocks, switching out of 2-stage discounts. The laggards and bargains are now preferred. We upgrade Bumi to Trading Buy from Underperform, downgrade Indo Tambang to Trading Sell (Neutral previously), downgrade Bukit Asam to Neutral (Outperform previously), and maintain Outperform on Adaro.