CIMB Coal Mining Sector Note - Takeaways from coal-sector marketing

Maintain Overweight on the Indonesian coal sector. We met 42 Asian fund managers last week. There was still positive interest in the sector as most agreed that fundamentals remain solid. Most were still overweight on the sector. From this, we conclude that there is more bottom-up stock-picking. Companies such as Adaro and United Tractors with solid fundamentals were still favoured, while laggards such as PTBA and Straits Asia gaining interest. Pure coal producers were also generally more favoured than contract miners. That said, the catalyst and time for re-entry are key, particularly as stocks are now no longer cheap. We recommended adding to positions in the sector in 2Q10, ahead of seasonal demand strength during the peak of summer and positive news flow from Japanese benchmark price negotiations which should bode well for producers. These two catalysts should be supported by the prospect of a weakening US$, in our view.