Golden Energy and Resources Ltd - Phillip Securities 2018-11-26: Production On Track But Some Price Headwinds

GOLDEN ENERGY AND RESOURCESLTD (SGX:AUE) | SGinvestors.io GOLDEN ENERGY AND RESOURCESLTD (SGX:AUE)

Golden Energy and Resources Ltd - Production On Track But Some Price Headwinds

  • Revenue and net profit missed our expectations due to higher operating expenses and correction in coal prices.
  • Production surged 66% while coal prices slightly dropped.
  • Multiple upward pressures on cash cost. We lower FY18e EPS to 2.7 US cents (previously 3.1 US cents) due to a higher than expected cash cost and a lower projected ASP. 
  • Based on unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we reiterate our BUY recommendation with a lower target price of S$0.36 for FY18.



The Positives


Growth in production amid a slight drop in coal prices:

  • Production from coal for 9M18 totalled 15.9mn tonnes (79.5% of 20mn tonnes of FY18 sales target).
  • HBA (Indonesia Coal Price Reference) had risen by 24.4% y-o-y to US$105.7/tonne in 3Q18. However, ASP for GEAR dipped y-o-y slightly due to the price cap on the coal supply to PLN. During the quarter, 1.2mn tonnes was supplied to PLN.


The Negatives


Several factors led to a higher cash cost:

  • In 9M18, cash cost jumped 22.2% y-o-y to US$26.4/tonne. The increase in the strip ratio of BIB mine (9M18:4.8 vs 9M17:3.7) accounted for US$1.6/tonne out of US$5 of increment in cash cost. The increase in fuel price, the distance between mining field and overburden dumping site, coal hauling, and port/jetty cost lifted the cost by another US$0.5/tonne, US$0.75/tonne, US$0.65/tonne, and US$0.6/tonne respectively.
  • Full-year cash cost is expected to be c.US$26/tonne.


Outlook


  • During 3Q18, Golden Energy and Resources (GEAR) completed the acquisition of BSL mine which has been producing coal. The production contribution of BSL is expected to be 1k tonnes in 4Q18 and 1mn tonnes in FY19. Together with expected 24mn tonnes from BIB mine and 2mn tonnes from KIM mine, the FY19 output target is 27mn tonnes. However, the average life of mine stripping ratio of BSL mine is 6. The overall cash cost will be higher next year.
  • The outlook for coal prices in the near term is bearish. At present, the domestic spot coal price in Indonesia is about US$35/tonne (4,200 GAR) as compared to US$40.8/tonne in 3Q18. The output volume from BSL is small. Hence it will be sold at the spot market. We believe that GEAR is capable of achieving its annual target of 20mn tonnes of coal sales. However, we lower our average coal price forecast (4,200GAR) in FY18 to US$38.5/tonne (previously US$40/tonne) while maintaining the forecast in FY19 at US$40/tonne.
  • Golden Energy and Resources (GEAR) acquired 19.9% of Stanmore Coal, a listed coal miner in ASX, for A$47.4mn in Nov-18. The company’s product mix is 30% of thermal coal and 70% of coking coal. The investment is considered to diversify GEAR’s current portfolio.


Maintained BUY with a lower Target Price of S$0.36 (previously S$0.42)

  • We lower FY18e EPS to 2.7 US cents (previously 3.1 US cents) due to a higher than expected cash cost and lower projected ASP.
    Based on unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we reiterate our BUY recommendation with a lower target price of S$0.36 for FY18.





Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2018-11-26
SGX Stock Analyst Report BUY MAINTAIN BUY 0.36 DOWN 0.420



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