It is reported that Straits Resources (SRL) has received a numberunsolicited offers regarding its 47.1% stake in Straits Asia Resources(SAR). The SRL management has conduct a strategic review upon the offersconsidering that current value of SAR might not reflecting its fullpotential.

The possible divestment of SAR by SRL is positive for SAR minorityshareholders in our view as such event will be able to elevate SAR shareprice to its full potential value. We maintain our target price of S$1 forSAR, thus the counter still presents a 36% upside potential.

Currently SAR’s share price is reflecting a market capitalization toreserves ratio of US$4.7/tons and a market capitalization to resourcesratio of US$0.8/tons whilst latest major coal mine acquisition was done atc.US$4/tons for the former and c.US$2/tons for the later.

The divestment plan will not impact the operational activity for SAR,however if it do indeed happen, some changes in management is highly likelyin which the impact still cannot be measure at the moment.