• After our conference call with management, we remain positive on GSS Energy and maintain BUY. That, and our new SOP-based Target Price of SGD0.22 from SGD0.25 offering 65% upside, is based on a one-off non-cash impairment of SGD2.95m in its 2Q18 results.
• The impairment was mainly on its old investment in the West Jambi block, with the focus mainly now on the Trembul operating area. Core earnings remain positive, with topline rising 12.1% y-o-y and PATMI surging 354% y-o-y for 2Q18.
• We expect the Precision Engineering business to be more robust in the 2H18, while oil exploration results on its second well are anticipated to be made known soon.

SGD2.95m Impairment for West Jambi Block

GSS Energy had an investment arrangement with the joint operation scheme (KSO) operator for the West Jambi block. The outcome of the first drill and the operator’s other business priorities caused uncertainties in continuing works in the West Jambi block. As such, GSS Energy deemed it a prudent measure to book impairments for this investment.

Source: RHB Invest Research - 16 Aug 2018