Golden Energy And Resources Ltd - Phillip Securities 2018-03-16: Great Quarter To End A Stunning Year

Golden Energy And Resources Ltd - Phillip Securities 2018-03-16: Great Quarter To End A Stunning Year GOLDEN ENERGY AND RESOURCESLTD AUE.SI

Golden Energy And Resources Ltd - Great Quarter To End A Stunning Year

  • Golden Energy And Resources' revenue beat our forecast by 23.5% due to higher than expected sales volume and average selling price (ASP). On the flip side, net profit missed by 6% due to higher cash cost and income tax expenses.
  • 15.6mn tonnes of production volume in FY17 (+64.2% y-o-y). FY17 ASP grew a healthy 25.7% y-o-y.
  • 4Q17 cash cost was higher than expected (+139.5% y-o-y).
  • We lower FY18e to EPS 3.5 US cents (previous 4.3 US cents) due to the expectation of higher cash costs and interest burden. Based on unchanged average 12-month forward PER of 10x (the average of regional peers) and the FX rate (USD/SGD) of 1.36x, we lower our target price to S$0.48 for FY18 (previous S$0.59) and reiterate our BUY recommendation.



Positives 


+ Exceeding the annual target amid buoyant coal prices: 

  • The stunning performance in FY17 was mainly attributed to the ramp-up of production. Especially in 4Q17, the production peaked, substantially favouring the group to overshoot the full year production target of 14.4mn tonnes. 
  • Meanwhile, ASP recorded healthy y-o-y growth of 25.7% in FY17, driven by the persistent shortage of thermal coal supply in China.

+ Securing total 15mn tonnes of order for FY18: 

  • At the beginning of FY18, GEAR signed 13 offtake agreements with clients including domestic power plants and trading houses. From this total, 9 contracts for export that locks 11.3mn tonnes of coal sales from the group and the remaining 4 domestic supply contracts will lock in another 3.8mn tonnes.
  • To sum up, GEAR had secured 15.1mn tonnes of sales in FY18, which amounted to 75% of the annual target of 20mn tonnes.


Negatives 


- Cash cost was higher than expected in 4Q17: 

  • In 4Q17, the growth of cash cost outpaced that of production volume, owing to higher coal freight, mining overhead and royalty.
  • Moving forward, it is expected that the cash cost will be maintained at US$23/tonne to US$24/tonne in this and next year.


Outlook

  • Recently, the Minister of Energy and Mineral Resources (MEMR) announced several adjustments pertaining to Domestic Market Obligation (DMO) for coal sector in Indonesia: 
    1. Coal miners are required to supply at least 25% of total production within 2018 to the domestic market.
    2. Coal sale price for power sector for the public interest is fixed at US$70/tonne (on FOB Vessel basis) (6,322 GAR, total moisture 8%, total Sulphur 0.8%, and ash 15%) if the prevailing price is higher than US$70/tonne.
  • We believe this amended regulations will have limited impact on GEAR since it has been supplying more than 25% of annual production domestically (FY16: 58%, FY17:30%). The fixed price will be mainly applied to the portion that is supplied to PLN (the Indonesian government-owned power corporation). 
  • We think the coal price outlook for GEAR remains stable with our assumption of US$43/tonne in FY18. The main performance driver will still be the growth of production (FY18e: +28% y-o-y). 
  • Moreover, the group had issued US$150mn of senior notes. After repaying US$50mn of facilities, GEAR has cash in hand amounted to c.US$290mn currently. We believe it will acquire more assets or investments to enhance the yield by leveraging the war chest in the near term.


Maintained BUY with a lower Target Price of S$0.48 

  • We lower FY18e EPS 3.5 US cents (previous 4.3 US cents) due to the expectation of higher cash costs and interest burden. 
  • Based on unchanged average 12-month forward PER of 10x (the average of regional peers) and the FX rate (USD/SGD) of 1.36x, we lower our target price of S$0.48 for FY18 (previous S$0.59) and reiterate our BUY recommendation.






Chen Guangzhi Phillip Securities | https://www.stocksbnb.com/ 2018-03-16
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 0.48 Down 0.590



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