KGI : 31 JAN 2024

Geo Energy Resources Ltd (GERL SP): Production to jump

• BUY Entry &ndash 0.330 Target&ndash 0.360 Stop Loss &ndash 0.315
• Geo Energy Resources Limited is an integrated coal mining specialist. The Company owns and operates coal mines, offers mine contracting services to third party mine owners, and sells coal to both coal traders and coal export companies.
• Inorganic growth to expand sales volume. As of 31 December 2023, Geo Energy owns 73.11% of PT Golden Eagle Energy Tbk, listed on IDX, and it owns 85% of TRA mine. In December 2023, after the acquisition, TRA had its first export shipment of coal valued at around USD3.2mn based on the ASP of approximately USD58.98 per tonne, which was sold at a premium to the Indonesian Coal Index (ICI) price of USD58.05 per tonne at that time, indicating the favourable demand for TRA coal. TRA produces 3,800 kcal/kg gar coal and has 275Mt of 2P coal reserves, leading to a 262% increase in reserves after the acquisition.
• Long life of mine and low operating costs. Geo Energy obtains a strategic advantage stemming from the extensive lifespan and projected coal production of its mines, instilling confidence in long-term clients to engage in supply contracts with the company. Boasting over 351 million tonnes of thermal coal reserves, Geo Energy holds a prominent position in Indonesia. Additionally, its commendably low stripping ratio, approximately 4.8 for a large-scale coal operator, equips Geo Energy with resilience against cyclical fluctuations in volatile coal prices.
• Upbeat outlook after the acquisition. The recent EGM voting approved the acquisition of two promising companies, significantly expanding the group&rsquo s mining portfolio. The newly acquired mine boasts an estimated 275 million tonnes of reserves. Within 5-6 years, Geo Energy will scale up its production to up to 25 million tonnes from the current 8-10 million tonnes, implying a CAGR of 18.6%. The strategic move aligns with the robust demand for TRA coal, primarily fuelled by China and Korea. Despite challenges such as the Monsoon season impacting mining activities, the group anticipates sustained profitability, emphasizing the strategic imperative for acquiring additional mines.
• 3Q23 results review. 3Q23 revenue decreased by 33% YoY to US$111mn from US$164.7mn. Net profit fell 68% YoY to US$11.5mn from US$35.7mn. It attributed the lower revenue to lower sales volume and average selling price, noting that the average Indonesian Coal Index Price for 4,200 GAR coal fell to US$52.07 per tonne in Q3, from US$82.20 per tonne a year earlier. Coal sales declined from 2.4mn tonnes to 2.2mn tonnes.
• Market Consensus. We have a fundamental coverage with a BUY recommendation and a TP of S$0.80. 

yoga123      ( Date: 31-Jan-2024 09:59) Posted: Bro ozone, I believe our first target of 0.38 will be achieved very soon. After that, 0.43 will be the next target.  Cheers!