Geo Energy (IPO)

Geo Energy IPO: IPO closes tomorrow at 12 p.m. Key investment points are: - Exposure to volatility in coal prices, which has been on a downtrend with benchmark Newcastle prices tumbling to a 3½ year low of US$80.60/ton last week. The group does not have any fixed term contracts, except for a one-year coal sales agreement, and hence would be vulnerable to spot coal prices. - As a low-quality coal producer, GER faces the risk of purported plans by the Indonesian government to prohibit export of “low rank coal” or impose an export tax on coal. To diversify its revenue base, the group is looking to convert its previous coal cooperation contracts for its mine contracting division. The group also has ROFOAR to 3 concession sites. · Lofty valuations will be partially mitigated if the group achieves its sales guidance. At $0.325, GEO is valued at 20.9X FY11 P/E vs peers’ average of 8.8X. With a potential delisting of Sakari and death of listed coal plays on SGX, the stock may likely command a scarcity premium.