1Q18 was a record quarter for coal producer Golden Energy & Resources (GEAR).

R
evenue hit US$273.0 million, up 90.7% year-on-year.

Stock price 

36.5 c

52-week range

34–49 c

PE (ttm)

9.1

Market cap

S$859 m

Shares outstanding

2.35 b

Dividend 
yield
(ttm)

4.9%

1-year return

-7%

Profit attributable to GEAR shareholders jumped 40.7% to US$26.8 million.

As 1Q is seasonally a low quarter because of the rainy season, one may figure that on an annualised basis, GEAR could achieve profits of the order of US$100 million (2017: US$63 million).

The swing factor would be the selling price of coal.

Post 1Q, coal prices softened to US$43.50/mt in April from a high of US$51.50/mt in Feb this year for FOB Kalimantan 4,200kcal/kg GAR coal.

USD’m

2017

2016

2015

Cash flow
from ops

269.5

54.4

(3.8)

Free cash
flow

154.2

45.8

(12.1)

"We expect coal prices to soften but we will mitigate this by ramping up production," said Mark Zhou, GEAR's head of investments at a 1Q results briefing. "We are looking at ASPs to be US$38-42 per tonne."

Assuming US$100 million in profit for this year, GEAR's share price would be trading at about 6X PE.

Its operating cashflow will be enlarged (to US$190 million, according to Phillip Securities) -- but GEAR has an expected capex of US$113 million this year, according to Phillip Securities.

Assuming an unchanged 1.8-cent dividend, the yield would be 4.9% based on the recent stock price of 36.5 cents.


This table looks at the trend for some key metrics: 

Year

2016

2017

2018F

1Q18

Net profit attributable 
to shareholders

US$21.8 m

US$63.0 m

?

US$26.8 m

Coal production

9.5 m 
tonnes

15.6 m 
tonnes

>20 m 
tonnes

4.7 m 
tonnes

Weighted average 
selling price

US$33.8
/tonne

US$42.3
/tonne

?

US$47.35
/tonne

Cash cost
per tonne

US$19.5

US$23.1

forecast: 
US$25-26

 

 US25.56
/tonne


MarkZhou 11.2017Mark Zhou, head of investments at GEAR.
NextInsight file photo
Back to 1Q18 financial performance: It was mainly bolstered by the continued strong showing of its coal business, which benefitted from higher sales volumes and higher average selling prices.

The average selling price for the coal mining division increased from US$40.86 in 1Q 2017 to US$47.35 per metric ton in 1Q 2018.

This translates into an average cash profit of US$21.79 per metric ton, which would have been higher if not for an rise in the cash cost of mining due to a higher strip ratio and higher fuel cost.

Revenue from the coal mining division nearly doubled to US$237.3 million in 1Q2018.

Revenue generated by the coal trading division increased from US$12.6 million to US$35.3 million in the same periods under review.

US$’m

1Q18

1Q17

Change

Revenue

273.0

143.2

90.7 %

Gross Profit

115.9

72.1

60.7 %

Net Profit
after tax

43.5

29.6

47.1

Profit attributable
to owners

26.8

19.0

40.7 %

Earnings per share
(US$ cents)

1.14

0.81

40.7

In 1Q2018, GEAR produced 4.7 million tonnes of coal, and is on track to achieving over 20 tonnes for the year, or a 28% y-o-y increase supported by an ongoing expansion of PT Borneo Indobara’s processing capacity.

As of 31 March 2018, the Group’s balance sheet remains robust with 
cash and cash equivalents of US$304.8 million and a low gearing ratio of 0.16 times.

In February 2018, GEAR had raised US$150 million by issuing its maiden bonds.

Part of these proceeds are to be used for general corporate purposes including potential acquisitions.

FugantoWidjajaFuganto Widjaja, Group CEO of GEAR.Mr. Fuganto Widjaja, Executive Director and Group CEO of GEAR, said, “GEAR has consistently achieved excellent financial results since the resumption of trading in our Group’s shares in December 2016.

"The growth momentum of our topline is a clear reflection of the success of our production ramp-up and the operational efficiency of our coal mining operations, which enabled us to benefit from the current coal price environment."


Outlook

aerialport5.18GEAR's Bunati Port: Coal is transferred by conveyor belts to barges. The loading capacity of the conveyor belts is being expanded over 2018-2019 at US$8-10 million. This is in view of rising production targets of the mine. 
Photo: Company

GEAR expects coal demand to be firm at current levels for the rest of the year, driven by robust coal use in Asia, which accounts for over 70% of global thermal coal consumption.

The Group continues to see strong demand for its BIB coal from key Asian markets, such as China, India and South Korea despite national programmes to boost the use of gas and renewable energy.

GEAR, with its US$304.8 million cash, is on the hunt for acquisitions, targeting coal producers.

(GEAR has borrowings of US$227 million. Finance costs totalled US$4.96 million in 1Q18 mainly due to trade financing charges and interest expenses for its bonds).

Its US$65.6-million acquisition of PT Barasentosa Lestari (BSL) in South Sumatra is targeted to be completed by 3Q this year.

For the Powerpoint materials, click here.


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