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

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



The Positives


Total volume exceeded FY18 production target.



The Negatives


Price correction protracted in 4Q18.

  • 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.

Full-year cash cost jumped.

  • 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.


Outlook

  • 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.


Maintained BUY with a lower Target Price of S$0.30(previously S$0.36)

  • 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



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