With coal stocks recently outperforming the market, our resource analyst Olie takes another look at the sector. He thinks coal stocks do not look cheap from valuation standpoint.
Bottom line: Olie thinks that at this juncture most of Indonesian coal names have limited upside and hence is reluctant to advise investors to chase the names on rally.
HOWEVER….
There are indications that thermal coal price might have bottomed and coal equities could overshoot on the upside if thermal coal price moves higher. The latest update from CRR reports QHD prices +1-2% WoW, continuing strength.
For those looking for high beta names, the names to own are those names most exposed to spot seaborne market with large export portion and those with the most operating and financial leverage.
Indo Tambang (ITMG IJ): high export portion, higher cost structure, hence operating leverage.
Bumi (BUMI IJ): not for everyone but the most leveraged to thermal coal price.
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