Tuesday, October 30, 2012
Geo Energy: OSK initiates at Sell with TP $0.34, pegged to 4.6x FY13e EV/EBITDA (25% discount to peers). Geo Energy is an Indonesian coal miner operating the PT Bumi Enggang Khatulistiwa (BEK) coalmine in East Kalimantan. GER plans to expand coal production from an annual average of 0.6m tonne during 2009-11, to an annual average of 2.4m ton during 2012-17. The coal mining business will account for 67%-75% of the gross profit during 2012-2014e But the house notes that growth entails significant downside risks. 1) BEK-the only coal mining asset: any disruption in coal production at BEK will significantly lower earnings; 2) policy risk, as GER could be subject to coal export prohibition as almost all coal produced at BEK could be classified as ‘low rank coal’; 3) GER has not signed any fixed price coal sales contract beyond 2012, leaving future coal sales exposed to coal price volatility. The counter is unchg at $0.41.