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Accumulate on GSS Energy's current price weakness: RHB

Samantha Chiew
Samantha Chiew • 3 min read
Accumulate on GSS Energy's current price weakness: RHB
SINGAPORE (May 18): GSS Energy reported a 36.1% fall in 1Q18 earnings to $0.67 million from $1.05 million in 1Q17, on the back of higher expenses.
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SINGAPORE (May 18): GSS Energy reported a 36.1% fall in 1Q18 earnings to $0.67 million from $1.05 million in 1Q17, on the back of higher expenses.

Revenue was 12.4% higher at $24.4 million from $21.7 million a year ago, entirely contributed by the group’s precision engineering (PE) business.

This brought 1Q18 gross profit to $5.69 million, 11.9% higher than $5.09 million last year.

Distribution and selling expenses were 33.2% higher y-o-y at $2.42 million, while administration expenses increased by 24.0% y-o-y to $1.64 million.

Income tax expense were 55.6% more y-o-y at $0.73 million.

Sydney Yeung, CEO of GSS Energy says, “We look forward to delivering the Group’s profitability for FY 2018 based on the positive outlook for our PE and O&G business model.”

Following the results announcement, RHB is reiterating its “buy” recommendation on GSS Energy with a target price of 25 cents.

The group’s weak 1Q18 results was mainly because its oil & gas arm is still lossmaking due to the absence of revenue and higher drilling expenses (drilling activities were carried out in 1Q18), coupled with forex losses.

Its PE business however saw PATMI grow 21.1% y-o-y and a healthy topline growth of 12.4%, on new projects and higher customer orders.

This division also received compensation from one of its core customers due to delay in a large project, which should commence by 3Q18.

In a Thursday report, analyst Jarick Seet says, “As a result, we expect a few key projects to kick start in 2H18, which will likely support a stronger performance for GSS.”

Meanwhile, the group in April acquired a land in Batam to relocate its existing facility. The analyst says that this new facility should help meet expanded demand as its existing factory in Batam is close to full utilisation.

Earlier in 4Q17, the group’s management says that drilling results of SGT-01 had discovered commercially viable hydrocarbons, ie gas, and that discussions are ongoing to finalise the agreement for offtake of its gas. This could result in monetisation in 4Q18.

Moreover, the group has commenced exploratory activities in nearby Well P1 in 1Q18 and is currently waiting for results.

“As this is a makeover well with oil found previously, we expect a higher rate of success for oil discovery, and with the existing agreement with Pertamina to offtake the oil already in place, we expect monetisation if oil is discovered by 3Q18,” says Seet.

Despite the group’s weak 1Q18, the analyst remains optimistic on its prospects and expects many potential catalysts to come in the near future for both the group’s PE and oil & gas divisions.

The group is also expected to benefit directly from the rising oil prices.

“With a positive outlook ahead affirmed by its recently implemented dividend policy, we believe GSS is currently at an inflection point, and think that the current weakness represents a good opportunity to accumulate,” adds Seet.

As at 11.18am, shares in GSS Energy are trading at 15 cents or 1.56 times FY18 book with a 1.8% dividend yield.

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