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ASEAN STOCK WATCH Asean Affairs   28  February 2011

ASEAN Market Outlook

Shayne Heffernan

This week the S&P has built a wall of resistance at 1,360, and there is strong support at 1,300. For now we are more inclined to favor caution in the market and buy equities should the S&P break below 1306.

The S&P is up 4.8 percent since the start of the year and more than 25 per cent since the start of September, last weeks decline of 1.7 percent still makes this on of the best February’s in a while.

There is a strong possibility of more bad news from the Middle East, best keep your money in your pockets and wait early this week.

US crude futures spiked as much as 20 percent during the week to a high of $US103.41 per barrel, though they later fell below $US100. The CBOE Volatility Index VIX rose 17 percent this week and at one point was up 30 percent.

The surprise rally in crude prices was a result of spreading tensions in Nth Africa and the Middle East.

On Monday, new restrictions on short selling will go into effect. Under the new rules, the circuit breaker will kick in with a 10 percent price decline from the previous day’s close and will last for the duration of the trading day, as well as the following day.

Another reason to hold tight early in the week is the news that is coming out of China. What is being reported by the western media as “tightening” are actually some positive steps forward, China, Asia and Asean will finish this week with gains.

In China the government plans to set its annual gross domestic product (GDP) growth target for 2011-2015 at 7 percent, highlighting the need to raise the quality of growth and improve living standards.

China also stated State Council, the Cabinet, would discuss Wednesday proposals to raise the threshold of personal income tax.

The plan, if put into effect, would benefit middle and low-income groups and increase the total demand from the economy.

Asean Focus

Straits Asia Resources SGX:SAR

Shayne Heffernan has affirmed a strong buy on Straits Asia Resources SGX:SAR with a price target of $5 in 2012.

SAR is poised for earnings growth in 2011, driven by higher thermal coal prices and production volumes. It is expected that SAR will receive the final Pinjam Pakai permit by 2Q 2011, paving the way for its expansion in Sebuku.

Straits Asia is an unique company with a simple business model – mining thermal coal for export to major power utilities in Asia.

Straits Asia Resources (SAR) reported its FY10 results with earnings of US$88.2m,beating both ours and consensus’ estimates.

This represented a 33.9 percent decline owing to lower thermal coal prices. For its 4Q10, revenue declined by 11.1 percent YoY to US$207.3m while net profit contracted by 19.7 percent YoY to US$30.5m.

Nevertheless, these figures represented a strong sequential improvement with revenue and net profit growth of 12.5 percent and 31.5 percent, respectively. Abating rainfall at Sebuku enabled SAR to ramp up production in 4Q10, thereby improving unit production costs.

Straits Asia Resources (SAR) reported its 2010 results with earnings of US$88.2 million, beating forecast and consensus’ US$82.9m estimate. This represented a 33.9 percent decline in net profit, mainly on account of lower thermal coal prices, which fell 11 percent to US$72.81/ton.

Revenue eased by 1.6 percent to US$736.5m for 2010. For its 4Q 2010, revenue declined by 11.1 percent YoY to US$207.3m while net profit contracted by 19.7 percent YoY to US$30.5 million.

These figures represented a strong sequential improvement with revenue and net profit growth of 12.5 percent and 31.5 percent, respectively. A final dividend of 2.85 US cents has been declared in line with the group’s 60 percent payout policy, implying total dividends of 4.68 US cents for the year, or a yield of 2.5 percent.

Production ramp-up at Sebuku lowers unit costs. SAR’s better-than-expected performance arose from higher output at both mines, with Sebuku producing 1.1Mt (vs. OIR’s 1Mt estimate) and Jembayan producing 9.4Mt (vs. OIR’s 9Mt estimate).

Production at Sebuku ramped up towards the end of the year as heavy rains abated, allowing the group to improve its unit cost of production on the back of lower strip ratios.

Sri Trang Agro-Industry , Thailand’s largest publicly traded rubber maker is listed in Singapore and Bangkok.

Official says, Thai rubber exports in Y 2011 will double in value on rising world prices. Thailand is expected to earn twice as much from rubber exports in Y 2011 from last year on soaring global price and rising demand from China and India, a Thai official said.

Thailand, the world’s largest rubber producer and exporter, could expect to earn US$14B from its exports of about 3M tons of Natural Rubber in Y 2011, Luckchai Kittipol, president of the private Thai Rubber Association, said in an interview.

This is compared to a revenue of US$7B from an amount of exports of 2.7M tons in Y 2010.

Despite the almost same amount of export tonnage, the revenue in US$ terms is expected to double on the rising global rubber price.

Luckchai said rubber smoked sheet, a key export item of Thai Rubber products, is likely to fetch a price of US$6,300 per ton this year, compared to US$3,650 per ton last year.

“Since last November, the price makes a new record-high every day,” said Luckchai, who is also chief executive officer of Thai Hua Rubber Public Company Limited, a major rubber producer and exporter listed on the Thai stock market.

“This year’s price will definitely be higher than last year,” he said. “And the trend is the price will remain at a high level,” he said.

He said demand of natural rubber turned upward again last year after the global financial crisis in Y 2008, with the rising production of automobiles.

The automobile industry alone consumes roughly 70 percent of Global Natural Rubber,according to Luckchai.

He said last year’s drought in 1-H and then heavy rains in the last Q cut production of Natural Rubber, resulting in the rising price since November 2010.

Demand for rubber rose in particular from its usage to produce auto tires in China, which consumes 27 percent of the world’s production.

Luckchai, whose Thai Hua trades Rubber with China, said the Chinese consumption rose to 3M tons in Y 2010, the World’ s largest now, from about 1.1M tons in Y 2001.

Global demand of Natural Rubber in Y 2011 is estimated at 11M tons.


Shayne Heffernan brings more than 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over US$500m and 1 that reach a peak market cap of US$15billion. He has managed and overseen start-ups in Mining, Shipping, Technology and Financial Services.


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This year in Thailand-what next?

04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More

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