Golden Energy and Resources Ltd: Strong production on track May 18, 2018 854

PSR Recommendation: BUY Status: Maintained
Target Price: SGD0.48
  • Revenue and net profit exceeded expectations due to higher than expected sales volume and an average selling price (ASP)
  • Benefited from the buoyant coal prices in 1Q18
  • Upgrading the port loading capacity
  • Cash cost was higher than expected in 1Q18
  • We maintained our FY18e EPS at 3.5 US cents as we expect the higher capex to offset higher profits. Based on unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we keep the target price at S$0.48 and reiterate our BUY recommendation.

The Positives

+ Benefited from the buoyant coal prices in 1Q18: Revenue from coal mining segment accounted for 86.9% of total revenue in 1Q18. See the table below; the stellar growth was mainly attributable to production ramp-up. Meanwhile, HBA (Indonesia Coal Price Reference) grew by 18.5% YoY in 1Q18, which translated to a higher ASP accordingly.   

+ Upgrading the port loading capacity: Currently, there are two conveyor belts at Bunati Port – one with a capacity of 1k tonnes/hr and the other with 2k tonnes/hr. The new capacities will be upgraded to 4.2k tonnes/hr each, translating into a total annual capacity of 48mn tonnes. One belt is expected to complete upgrading by the end of 2018, while the other by 2019. The total capex is expected to be around US$8mn to US$10mn. Meanwhile, GEAR is also working on the road widening project which expands from 2 lanes to 4 lanes to increase traffic commuting to the jetty. The capex is expected to be around US$11 to US$12mn. The Group currently has a cash position of US$305mn to fund these upgrading projects.

The Negatives     

– Cash cost was higher than expected in 1Q18: The higher cash cost was mainly due to the jump of strip ratio (SR) from 3.5 to 4.28 in BIB mine (average life-of-mine SR: 4.1). Meanwhile, the higher fuel costs in 1Q18 also drove up cash cost. The overall cash cost is expected to average at US$25/tonne to US$26/tonne in FY18.


In Apr-18, coal prices started to correct in anticipation of lower coal demand in the upcoming slow season in China. We kept our FY18 forecast for coal price range (4,200 GAR) unchanged at around US$40/tonne to US$42/tonne. We believe that the production growth should outpace the increasing cash cost. The annual target of 20mn tonnes is still on track, and part of which will be contributed by the production from BSL mine. The acquisition of BSL mine is expected to be completed by 3Q18. We remain positive on FY18 performance in view of a healthy ASP and phenomenal growth of sales volume.

Maintained BUY with an unchanged price of S$0.48

We held FY18e EPS of 3.5 US cents unchanged as higher profits would be matched with a higher capex. Based on unchanged peer average forward PER of 10x and the FX rate (USD/SGD) of 1.36x, we keep the target price of S$0.48 for FY18 and reiterate our BUY recommendation.

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About the author

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Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

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