Golden Energy & Resources - RHB Invest 2017-08-16: In-Line 1H17 Earnings

GOLDEN ENERGY AND RESOURCESLTD AUE.SI

Golden Energy & Resources - In-Line 1H17 Earnings

Golden Energy and Resources (GEAR) booked 1H17’s earnings (net of minority interest) of USD30.8m, which was within our and consensus’ expectations (38% and 37.9% of our and consensus’ FY17F estimates).
We believe its higher coal sales volume in 2H17F should catch up.
Its interim dividend of SGD0.008/share generates a dividend yield of 2.05%, which is higher than our expectations.

We maintain our assumptions and reiterate BUY with a DCF- based TP of SGD0.71 (82% upside).
GEAR is one of the few listed coal companies that should have a sizable organic volume growth ahead.

Golden Energy and Resources (GEAR) achieved a 1H17 coal production volume of 6.01m tonnes (+39.5% YoY) despite an extended monsoon season. It claims that it is on track to reach FY17F’s coal production target of 14m tonnes (+47.3% YoY).

GEAR’s 1H17 coal production of 6.01m tonnes is still 42.9% of its FY17F coal production target. It booked 1H17 earnings (net of minority interest) of USD30.8m, which is within our and consensus’ expectations ie 38% and 37.9% of our and consensus’ FY17F estimates respectively. We think its higher coal sales volume in 2H17F should catch up.

GEAR would distribute an interim cash dividend of SGD0.008/ordinary share, which generates a dividend yield of 2.05%.
The dividend yield from its interim dividend is higher than our expected dividend yield of 0.3%. Ex date is on 18 Aug 2017 and payment date is on 4 Sep 2017.

The company has a healthy balance sheet. The proceeds from a ramp-up in its coal production has allowed GEAR’s net cash position to keep expanding to USD34m in Jun 2017 from USD29m in Dec 2016.

GEAR is one of the few listed coal companies that is aiming for a sizable organic volume growth target.
Mr Raden Utoro, Golden Energy Mines’ director, who has been instrumental in increasing the coal production of Kaltim Prima Coal – a coal mining company with one of the world’s largest open-pit mining – reiterated his target to reach the coal production target of 36m tonnes in 2021 (vs 9.5m tonnes in 2016).

We maintain our assumptions and reiterate our call with a DCF-derived TP of SGD0.71 (WACC:10.8%. LTG: 0%) that implies FY17F and FY18F P/Es of 14.7x and 12.4x respectively. We think this is justified as we expect its ROAE to increase to more than 20% with a significant forecast production growth ahead.
Main catalyst of the share price is the substantial earnings growth going forward due to a sizable increase in coal production.
Key risks to our call include execution risks in ramping up coal production, weaker-than-expected coal demand and price, as well as regulatory risks.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-16

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.710 Same 0.710