Golden Energy and Resources Ltd - Phillip Securities 2019-05-24: Mitigating An Unfavourable ASP

GOLDEN ENERGY AND RESOURCESLTD (SGX:AUE)

Golden Energy and Resources Ltd - Mitigating An Unfavourable ASP

GOLDEN ENERGY AND RESOURCES (SGX:AUE)'s 1Q19 revenue and PATMI missed our expectations due to higher operating costs and lower ASP.
Production volume on-track to meet FY19 target of 25mn tonnes; Cash profit slight above US$10/tonne in 1Q19.
Coal price headwinds dim the outlook; We lower FY19e EPS to 1.8 US cents (previously 2.2 US cents) due to higher overhead costs such as freight and stockpile expenses resulting from higher sales volumes.

Based on the unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we downgrade our recommendation to ACCUMULATE with a lower target price of S$0.24 for FY19.

In 1Q19, the quarterly production volume arrived at a historical high of 7.1mn tonnes, which accounts for 28.4% of FY19 target of 25mn tonnes. The steady growth was owing to the ramp-up of output in BIB mine whose FY19 mining plan is 22mn tonnes.

In 1Q19, cash cost decreased by 8.9% y-o-y and 21.8% q-o-q to US$23.3/tonne due mainly to the fall of ASP (part of the fuel cost is proportionate to ASP) and the change of terms in coal hauling services (from hourly basis to distance basis). The guidance for full-year cash cost remains at US$25/tonne to US$26/tonne.

During 1Q19, ICI 4 averaged at US$38.6/tonne (down 16.2% y-o-y but up 27.8% q-o-q). Accordingly, the ASP plunged by 26.8% y-o-y and 13.3% q-o-q to US$34.7/tonne.

The tailwinds for Golden Energy & Resources are the expected 10.6% y-o-y growth of production and 8.8% y-o-y drop in cash cost. But the price headwind is the primary concern. China is still firm on the coal import restriction.
We hold the FY19e ASP at US$40/tonne (4,200 GAR) given the recent recovery of ICI 4 price. Accordingly, we expect the profitability will be better off for the rest quarters. Therefore, we believe the overall FY19e performance is comparable to FY18.
On the other hand, the two investments* over the past two years (10% stake of Westgold at A$1.885 and 25% stake of Stanmore coal at 25.5% at A$0.95) will help the balance sheet.

We lower FY19e EPS to 1.8 US cents (previously 2.2 US cents) due to higher overhead costs resulting from higher sales volumes.
Based on the unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we downgrade our recommendation to ACCUMULATE with a lower target price of S$0.24 for FY19.

Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-24

SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 0.24 DOWN 0.300