Geo Energy Resources - One of the Lowest-cost Indonesian Coal Producers

• According to Geo Energy Resources (SGX:RE4), it has one of the lowest cost structures among Indonesian coal producers, which allows the group to continue increasing the scale of its business operations, even with coal price fluctuations. Its SDJ and TBR mines, which are adjacent to each other, benefit from favourable geological conditions, as well as a developed infrastructure that is in relatively close proximity. These allow for efficient and low-cost mining and undisrupted transportation of coal to its customers.

Direct Beneficiary of Rising Coal Price

• Coal price has been trending upwards amid concerns on supply availability due to COVID-19 related disruptions in other mines. This, coupled with strong demand from China because of the continued ban on Australian coal, further pushed the average Indonesian Coal Index price for 4,200 GAR coal (ICI4) to US$47.8/tonne in 1H21 versus US$30.6/tonne last year. In fact, ICI4 coal price hit US$71.5 as at 18 Aug 2021 or over 49% up from the average ICI4 in 1H21.

Geo Energy's 1H21 Core Earnings Firmly Back in the Black

• Geo Energy Resources recently posted 1H21 net profit of US$48.5m, which is a complete turnaround from a net loss of US$8.7m last year (excluding the gains from repurchases of Senior Note). Revenue rose 37% to US$220.3m, driven mainly by the increase in sales volume and higher ASP. Backed by its net cash position, it has declared a second interim dividend of S$0.005, which translates to a 26% payout ratio on its 2Q21 earnings.

Higher Production in 2H; Valuation Discount to Peers

• Geo Energy Resources is planning for upcycle.

• On valuations, Geo Energy Resources is trading at less than 3x closest SGX-listed peer, Golden Energy & Resources (SGX:AUE) of ~7x.

Source: Maybank Kim Eng Research - 24 Aug 2021