Excerpts from Phillip Securities Research report

Analyst: Chen Guangzhi

bigmachine4.17@ Golden Energy's mine. NextInsight file photo♦ Singapore listed coal producers are growing production by 60% this year
♦ Indonesia domestic demand for coal is expected to double in ten years
♦ Coal prices to remain stable as China keeps demand-supply in check

Investment Thesis
Indonesia is the sweet spot for coal production
Indonesia enjoys demand from two captive sources. Firstly, Indonesia fulfils 40% of China’s imported coal requirements. Secondly, Indonesia will provide the spurt in demand domestically. We expect domestic demand for coal to ramp from 85mn tonnes in 2017 to 155mn tonnes in 2026. Demand for coal in Indonesia will be fuelled by the large roll-out of power plants. Indonesia aims to increase 35 GW of installed power capacity.

ChenGuangzhiSingapore listed coal producers enjoying stellar growth.
The coal producers under our coverage are expected to grow their production by 60% in FY17. This is much faster than their listed peers in Indonesia, whose production is set to grow by 8%. In addition to the accelerated growth, the valuations in Singapore are cheaper on a P/E and EV/reserve basis. 

-- Chen Guangzhi (photo), 
Analyst, Phillip Securities Research 

China will provide stability to coal prices.
China is the world largest consumer and producer of thermal coal. As of 2016, total consumption volume of thermal coal is close to 4bn tonnes which accounted for around 50% of world consumption.

China dictates global thermal coal prices. China’s policy is to stabilise coal prices and even out demand-supply in order to benefit both thermal power and coal producers domestically. Under the 13th Five Year Plan, China aims to further curb the growth of coal production, targeting at 3.9bn by 2020.

This is a meagre 0.5% growth p.a. from the production of 3.8bn in 2015. The number of coal mines will be cut by 38% to 6000 by 2020. On demand, China plans to cap the coal consumption at 4.1bn tonnes by 2020 (2016: 4bn tonnes).

Investment Actions 

Golden Energy

Geo Energy

Blackgold

Stock price

44 c

26 c

11.8 c

Target price

59 c

44 c

16 c

Source: Phillip Securities

Golden Energy and Resources (GEAR): The largest Singapore listed coal producer.

It has four producing coal concession and coal reserves of 778mn tonnes. GEAR is ramping up its production by 90% over two years to 18mn in FY18e. We initiate coverage with a BUY rating with a target price of S$0.59 for FY18e. 


Blackgold Natural Resources (BNR): BNR started coal production only in 2016 with a meagre 30k tonnes. We expected production to spike up to 1.3mn tonnes in FY18e after securing four new customers.

BNR has sizeable coal reserves of 147mn tonnes. The award of a Riau 1 mine mouth power plant project could further triple production by 3.5mn tonnes. The ability to fund this huge project will be the challenge. We initiate BNR with a Trading BUY and target price of S$0.16. At our target price of S$0.16, BNR will be trading at 10x PE FY18e. This will be in line with regional peers. 


Geo Energy Resources Ltd (GEO): In FY17, GEO targets to sell 10mn tonnes of coal. This is an 82% jump over FY16. The current reserves are over 90mn tonnes. We maintain our BUY rating with a target price of S$0.44.


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