Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

It has been almost two years since we last wrote about <a href="https://www.smartkarma.com/entities/geo-energy-resources-ltd" target="_blank" data-smartkarma-citation="entities:8717:1" rel="noopener">Geo Energy Resources (GERL SP)</a>. Our last insight can be found here <a href="https://www.smartkarma.com/insights/geo-energy-gerl-sp-distressed-bonds-and-share-price-versus-optimistic-management-who-is-right" target="_blank" data-smartkarma-citation="insights:34887" rel="noopener">Geo Energy (GERL SP): Distressed Bonds and Share Price Versus Optimistic Management; Who Is Right?</a> How things have changed!Back in late 2019, the coal price was hovering between 20-30 USD, Macquarie had bought 5% of the company for 0.29 SGD/share in November 2018 and Geo was generating losses as the coal price was below its cost of production. Entering 4Q21 the coal price is at stratospheric highs (117 USD for October 2021 delivery) and Geo is earning record profits.In a public disclosure, the company announced it made 26.5M USD in EBITDA in July 2021 alone. This was with coal prices around +/-50 USD/ton. Today coal prices are well over 100 USD. We estimate at current prices Geo is making at least 45M-50M USD in EBITDA every month! Compare this to the market cap of 320M USD currently. In 2H EBITDA at current market prices could total +/- 225M USD alone. 1H2021 EBITDA was 78M USD. Recall, Geo has no debt and 60M USD in cash.Mr. Market is slowly waking up to this reality pushing the stock up over 70% YTD (most of the gain came in the last few trading sessions). Many Indonesian-listed peers such as <a href="https://www.smartkarma.com/entities/adaro-energy-tbk-pt" target="_blank" data-smartkarma-citation="entities:6061:1" rel="noopener">Adaro Energy (ADRO IJ)</a>, <a href="https://www.smartkarma.com/entities/tambang-batubara-bukit-asam" target="_blank" data-smartkarma-citation="entities:1189:1" rel="noopener">Tambang Batubara Bukit Asam (PTBA IJ)</a>, and coal contractor <a href="https://www.smartkarma.com/entities/united-tractors-tbk-pt" target="_blank" data-smartkarma-citation="entities:698:1" rel="noopener">United Tractors (UNTR IJ)</a> have also underperformed vs the underlying commodity.  However, this is not true of US-listed peers such as <a href="https://www.smartkarma.com/entities/consol-energy-inc-61c2f282-fc00-497d-9066-606d78f6fe82" target="_blank" data-smartkarma-citation="entities:26245:1" rel="noopener">Consol Energy (CEIX US)</a> and <a href="https://www.smartkarma.com/entities/peabody-energy-corp" target="_blank" data-smartkarma-citation="entities:6430:1" rel="noopener">Peabody Energy (BTU US)</a> which are up 345% and 606% respectively YTD.We expect a 4Q21 catch-up trade-in Indonesian-related coal names that could be violent. While prices will surely cool off in 2022 they might not drop all the way below the cost of production once again. Geo has a 30% dividend policy so investors are sure to see massive dividends (est. 18% div yield) come March 2022. Board member Jim Rogers should hopefully make sure the cash is not squandered on doing an expensive M&amp;A deal but is returned to shareholders.

It has been almost two years since we last wrote about Geo Energy Resources (GERL SP). Our last insight can be found here Geo Energy (GERL SP): Distressed Bonds and Share Price Versus Optimistic Management; Who Is Right? How things have changed!Back in late 2019, the coal price was hovering between 20-30 USD, Macquarie had bought 5% of the company for 0.29 SGD/share in November 2018 and Geo was generating losses as the coal price was below its cost of production. Entering 4Q21 the coal price is at stratospheric highs (117 USD for October 2021 delivery) and Geo is earning record profits.In a public disclosure, the company announced it made 26.5M USD in EBITDA in July 2021 alone. This was with coal prices around +/-50 USD/ton. Today coal prices are well over 100 USD. We estimate at current prices Geo is making at least 45M-50M USD in EBITDA every month! Compare this to the market cap of 320M USD currently. In 2H EBITDA at current market prices could total +/- 225M USD alone. 1H2021 EBITDA was 78M USD. Recall, Geo has no debt and 60M USD in cash.Mr. Market is slowly waking up to this reality pushing the stock up over 70% YTD (most of the gain came in the last few trading sessions). Many Indonesian-listed peers such as Adaro Energy (ADRO IJ), Tambang Batubara Bukit Asam (PTBA IJ), and coal contractor United Tractors (UNTR IJ) have also underperformed vs the underlying commodity.  However, this is not true of US-listed peers such as Consol Energy (CEIX US) and Peabody Energy (BTU US) which are up 345% and 606% respectively YTD.We expect a 4Q21 catch-up trade-in Indonesian-related coal names that could be violent. While prices will surely cool off in 2022 they might not drop all the way below the cost of production once again. Geo has a 30% dividend policy so investors are sure to see massive dividends (est. 18% div yield) come March 2022. Board member Jim Rogers should hopefully make sure the cash is not squandered on doing an expensive M&amp;A deal but is returned to shareholders.

Geo Energy: Indonesian Coal Market Beneficiary Trading at Distressed Multiple

Indonesia Political Risk Analyst

Kevin O’Rourke

Reformasi

29 November marked a turning point in the half-century history of the world's largest gold mine (and 2nd largest copper mine), PT Freeport Indonesia, owned by <a href="https://www.smartkarma.com/entities/12491" target="_blank" data-smartkarma-citation="entities:12491:1">Freeport Mcmoran (FCX US)</a>.  News emerged that President Widodo prevailed upon two officials who had been hampering his nationalization plan, whereby state-owned PT Inalum purchases 51 percent of Freeport for US$3.85 billion.  Inalum secured financing through bonds in early November, and today the minister of environment and forestry conceded to a relaxation of restrictions on tailings disposals -- a key factor that had threatened to block the deal.  Widodo also secured the crucial support of Papua Governor Lukas Enembe.  There would now appear to be nothing left standing in the way of the transaction finally coming to fruition during December. Economically, this will only serve to exacerbate the government's exposure to commodity cycles.  But politically Widodo will be able to use the deal to burnish his image as a nationalist in the presidential campaign.  For FCX, the nationalization brings myriad new risks, but FCX executives approve the pricing and the terms provide for FCX to retain operational control.  The share-sale should enable the mine to embark on its long-delayed underground expansion -- although whether Inalum can shoulder its share of the US$20 billion capex plan may now become the next episode in the Freeport saga.

29 November marked a turning point in the half-century history of the world's largest gold mine (and 2nd largest copper mine), PT Freeport Indonesia, owned by Freeport Mcmoran (FCX US).  News emerged that President Widodo prevailed upon two officials who had been hampering his nationalization plan, whereby state-owned PT Inalum purchases 51 percent of Freeport for US$3.85 billion.  Inalum secured financing through bonds in early November, and today the minister of environment and forestry conceded to a relaxation of restrictions on tailings disposals -- a key factor that had threatened to block the deal.  Widodo also secured the crucial support of Papua Governor Lukas Enembe.  There would now appear to be nothing left standing in the way of the transaction finally coming to fruition during December. Economically, this will only serve to exacerbate the government's exposure to commodity cycles.  But politically Widodo will be able to use the deal to burnish his image as a nationalist in the presidential campaign.  For FCX, the nationalization brings myriad new risks, but FCX executives approve the pricing and the terms provide for FCX to retain operational control.  The share-sale should enable the mine to embark on its long-delayed underground expansion -- although whether Inalum can shoulder its share of the US$20 billion capex plan may now become the next episode in the Freeport saga. 

Environment Minister Removes Last Hurdle to Nationalization of Freeport (FCX US) Mine

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

<ul>
<li>Good gross profit return, improving operating profit, and good chance of target-price upgrade relative to its sector</li>
<li>Coal prices should be supported by China’s policy to implement stricter environmental and safety requirements in major mining provinces</li>
<li>As PTBA sells more than half of its coal to the domestic market, which is above the 25% in the Domestic Market Obligation (DMO), the company can sell its over-quota to other companies that don’t meet the DMO quota</li>
<li>Attractive at 18CE* 12.7% ROE/PB versus ASEAN Energy at 8.1%, offers a nice 6.1% dividend yield and PTBA is net cash</li>
<li>Risks: Fall in Chinese demand, revisions of DMO unfavorable to PTBA</li>
</ul>* Consensus Estimates


Good gross profit return, improving operating profit, and good chance of target-price upgrade relative to its sector
Coal prices should be supported by China’s policy to implement stricter environmental and safety requirements in major mining provinces
As PTBA sells more than half of its coal to the domestic market, which is above the 25% in the Domestic Market Obligation (DMO), the company can sell its over-quota to other companies that don’t meet the DMO quota
Attractive at 18CE* 12.7% ROE/PB versus ASEAN Energy at 8.1%, offers a nice 6.1% dividend yield and PTBA is net cash
Risks: Fall in Chinese demand, revisions of DMO unfavorable to PTBA
* Consensus Estimates

PTBA (PTBA IJ): Can Benefit from Selling Mainly to the Local Market

<ul>
<li>Strong net profit momentum, improving operating profit, and low debt levels relative to its sector</li>
<li>Coal prices should be supported by China’s policy to implement stricter environmental and safety requirements in major mining provinces</li>
<li>Planned increase in railway capacity by 8% YoY to 23m tonnes by the end of 2018 should help PTBA to meet strong demand for coal</li>
<li>Attractive at 18CE* 10.4% ROE/PB versus ASEAN Energy at 8.1%, offers a nice 5.3% dividend yield and PTBA is net cash</li>
<li>Risks: Fall in Chinese demand, domestic price cap policy can lower average selling price on part of PTBA’s annual volume</li>
</ul>* Consensus Estimates


Strong net profit momentum, improving operating profit, and low debt levels relative to its sector
Coal prices should be supported by China’s policy to implement stricter environmental and safety requirements in major mining provinces
Planned increase in railway capacity by 8% YoY to 23m tonnes by the end of 2018 should help PTBA to meet strong demand for coal
Attractive at 18CE* 10.4% ROE/PB versus ASEAN Energy at 8.1%, offers a nice 5.3% dividend yield and PTBA is net cash
Risks: Fall in Chinese demand, domestic price cap policy can lower average selling price on part of PTBA’s annual volume
* Consensus Estimates

PTBA (PTBA IJ): Strong Fundamentals at Indonesian Coal Miner

<ul><li>Earnings on an upcycle trend, good cost management, and low debt levels relative to its sector </li><li>PTBA plans to begin construction of a steam power plant Sumsel 8 with 2 x 620MW capacity at the beginning of 2018 </li><li>The company is well positioned to benefit from rising energy consumption and growing demand for coal in Southeast Asia which is expected to grow at CAGR of 5% according to IEA** </li><li>PTBA trades below Asian Energy at 17CE* 8.4x PE, offers better earnings growth and is net cash </li><li>Risks: Weaker coal prices, fall in Chinese demand</li></ul>* Consensus Estimates**International Energy Agency established under the framework of OECD

Earnings on an upcycle trend, good cost management, and low debt levels relative to its sector PTBA plans to begin construction of a steam power plant Sumsel 8 with 2 x 620MW capacity at the beginning of 2018 The company is well positioned to benefit from rising energy consumption and growing demand for coal in Southeast Asia which is expected to grow at CAGR of 5% according to IEA** PTBA trades below Asian Energy at 17CE* 8.4x PE, offers better earnings growth and is net cash Risks: Weaker coal prices, fall in Chinese demand* Consensus Estimates**International Energy Agency established under the framework of OECD 

PTBA: Coal Player with a Solid Balance Sheet

Indonesia

PT Bukit Asam (Persero) Tbk is an Indonesian state-owned enterprise primarily engaged in coal mining activities, encompassing general surveying, exploration, exploitation, processing, refining, transportation, and trading of coal. The company also operates steam-fired power plants, manages special coal dock facilities, and provides services such as briquette processing, mining services, palm plantation and processing, and health services. It was founded in 1919 with the initiation of coal mining by the Dutch Colonial Government and is headquartered in Tanjung Enim, South Sumatra, Indonesia.

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Bukit Asam (PTBA IJ)

Geo Energy: Indonesian Coal Market Beneficiary Trading at Distressed Multiple

GEO has run 70% YTD but has lagged US-listed coal peers such as Consol and Peabody which are up respectively 345% and 606% YTD. We expect a violent...

Nicolas Van Broekhoven

Environment Minister Removes Last Hurdle to Nationalization of Freeport (FCX US) Mine

29 November marked a turning point in the half-century history of the world's largest gold mine (and 2nd largest copper mine), PT Freeport...

Kevin O’Rourke

PTBA (PTBA IJ): Can Benefit from Selling Mainly to the Local Market

Good gross profit return, improving operating profit, and good chance of target-price upgrade relative to its sector Coal prices should be...

A. Stotz Investment Research

PTBA (PTBA IJ): Strong Fundamentals at Indonesian Coal Miner

Strong net profit momentum, improving operating profit, and low debt levels relative to its sector Coal prices should be supported by China’s...

A. Stotz Investment Research

PTBA: Coal Player with a Solid Balance Sheet

Earnings on an upcycle trend, good cost management, and low debtlevels relative to its sector PTBA plans to begin construction of a steam power...

A. Stotz Investment Research

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