SINGAPORE (Nov 26): Golden Energy and Resources (GEAR) on Nov 13 reported 3Q18 earnings increased by 50.2% to $14.9 million from a year ago.

This came on the back of a 59.9% y-o-y increase in revenue to $286.7 million.

Despite the positive results, Phillip Capital says that revenue and net profit missed expectations due to higher operating expenses and correction in coal prices.

Nonetheless, the research house is keeping its “buy” call on GEAR, but with a lower target price of 36 cents.

In 9M18, the group experienced a slight drop in coal prices. However, it still managed to produce 15.9 million tonnes or 79.5% of its FY18 sales target of 20 million tonnes.

In 3Q18, the Indonesia Coal Price Reference, HBA, increased by 24.4% to US$105.7/tonne. ASP for the group dipped 4.2% y-o-y to 40.8 due to the price cap on the coal supply to Perusahaan Listrik Negara (PLN). During the quarter, it supplied 1.2 million tonnes of coal to PLN.

Yet, several factors led to a higher cash cost which increased by 22.2% y-o-y in 9M18 to US$26.4/tonne. Some of the factors include an increase in the strip ratio of PT Borneo Indobara (BIB) mine, fuel price, distance between mining field and overburden dumping site, coal hauling, as well as port and jetty costs.

In a Monday report, analyst Chen Guangzhi says, “Full-year cash cost is expected to be about US$26/tonne.”

On the outlook, coal prices in the near term is expected to be bearish.

Currently, the domestic spot coal price in Indonesia is about US$35/tonne (4,200 GAR) as compared to US$40.8/tonne in 3Q18. As the output volume from PT Barasentosa Lestari (BSL) is small, it will be sold at the spot market.

“We believe that GEAR is capable of achieving its annual target of 20mn tonnes of coal sales. However, we lower our average coal price forecast (4,200GAR) in FY18 to US$38.5/tonne (previously US$40/tonne) while maintaining the forecast in FY19 at US$40/tonne,” says Chen.

As at 12.45pm, shares in GEAR are trading at 23 cents or 1.5 times FY19 book.