Golden Energy and Resources Ltd - Phillip Securities 2019-03-07: Look Forward To Lower Costs

GOLDEN ENERGY AND RESOURCESLTD (SGX:AUE)

Golden Energy and Resources Ltd - Look Forward To Lower Costs

GOLDEN ENERGY AND RESOURCES LTD (SGX:AUE)'s revenue met our expectations while PATMI missed due to higher than expected production cash cost and operating expenses.
Total volume exceeded FY18 production target by 13%. The production target for FY19e is 25mn tonnes (+10.6% y-o-y).
FY18 cash cost jumped by 18% y-o-y but is expected to fall in FY19e.
Coal price headwinds to remain due to extended coal import restriction from China.
We lower FY19e EPS to 2.2 US cents (previously 2.9 US cents) due to a weaker projected coal 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$0.30 for FY19.

Golden Energy And Resources's FY18 full-year production from coal mining totalled 22.6mn tonnes, exceeding by 13% of FY18 target.

HBA (Indonesia Coal Price Reference) grew mildly by 3.0% y-o-y to US$97.1/tonne in 4Q18 but fell by 7.1% q-o-q. ICI 4 averaged at US$30.2/tonne (down 21.3% q-o-q).
Meanwhile, the spread between Newcastle Coal (NeWC) and ICI 4 widened during the period. Averagely, ICI 4 is trading at a 50% discount to NeWC, but the discount increased to 70% in 4Q18.

In FY18, Golden Energy And Resources's cash cost surged by 18.6% y-o-y to US$27.4/tonne. The increase in the strip ratio of BIB mine (FY18:4.2 vs FY17:4.8) accounted for US$1.5/tonne.
The increase in cost was impacted by fuel price, the distance between mining field and overburden dumping site, coal hauling, road repair and maintenance, and port/jetty cost lifted the cost by another US$0.7/tonne, US$0.65/tonne, US$0.50/tonne, US$0.8/tonne and US$0.50/tonne respectively.

In FY19, Golden Energy And Resources will continue to ramp up production. According to the mining plan, the company is expected to deliver 25mn tonnes (+10.6% y-o-y) of output (BIB: 22mn tonnes, KIM: 2mn tonnes, and BSL: 1mn tonnes).
Meanwhile, the average cash cost is expected to revert to US$25/tonne (down 8.8 % y-o-y) due mainly to the normalisation of stripping ratio of BIB mine (from 4.8 in FY18 to 4.2 in FY19, the average life-of-mine stripping ratio: 4.1). With the China coal import restriction, we maintain coal price forecast at US$40/tonne (4,200 GAR).
In a nutshell, we believe the higher production and lower cash cost could offset the price headwinds, supporting a moderate growth of both top line and bottom line this year.

We lower FY19e EPS to 2.2 US cents (previously 2.9 US cents) due to 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$0.30 for FY19.

Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2019-03-07

SGX Stock Analyst Report BUY MAINTAIN BUY 0.30 DOWN 0.360