Thursday, October 11, 2012

To Invest in Geo Energy Group?

Geo Energy Group is the 13th publicly offered IPO to list on the SGX this year, 2012. Not a bad week for cash-rich investors seeking the extra investment opportunities in a saturated property market, overpriced REITs soon-to-form-bubble and lack of global growth leading to stagnation in stock prices. It is the 2nd to announce its listing this week apart from the Courts IPO. Looks like the underwriters and company management are expecting the market to pick up in the final quarter of the year to spur up some more stock demand.

Anyway, here's a quick summary of the offering. For more information, please refer to the prospectus lodged with SGX here.
  • Coal mining group with operations that started in 2008
    • Operations are primarily located in Kalimantan, Indonesia
    • Mine operator
    • Mine owner cum operator
    • Mine contractor providing services to third party mine owners
  • Figures and numerics
    • $0.325 per share
    • 3,000,000 offer shares for public subscription
    • 289,264,000 invitation shares
    • S$94.0 million in gross proceeds to be raised
      • S$77.8 million after deducting listing expenses
      • 41.9% general working capital
      • 39.3% to acquire mining equipment and machinery
      • 15.7% business expansion including acquisitions, joint ventures and/or strategic alliances
      • 3.1% construction of jetty and barge loading facilities
    • No dividend policy
  • Timeline for offering


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Have yet to digest the prospectus completely but here are my fleeting thoughts on the offering as it is portrayed on first impressions.
  • Relatively new company with an eye on consolidating operations with what they currently have but not too overly ambitious with expansion plans.
  • No dividend policy makes it a high risk investment in the long run given that share price fluctuations will largely be dependent on its profitability.
  • However attractive the prospectus makes the coal business look to be, it does not seem to have a solution to China's infrastructural development slowdown. The rest of the world is also in malaise and fiscal debts are being tackled internationally. It is difficult to envisage the same heydays for coal at least for 1 year down the road before the financial stimulus does find its way to prop up China and lead emerging markets and Europe out of the abyss by 2014.
  • Expect highly volatile earnings. Competition is very strong in the mining industry and profits are largely dependent on coal prices.
  • PE ratio seems a little on the high side 
    • Sakari Resources, a mine operator with presence in Indonesia, trades with a 11.7x P/E TTM (Source: Bloomberg Businessweek)
    • Energy sector in Asia has a 5.5x P/E TTM for 168 companies (Source: Bloomberg Businessweek)
    • Singapore's stock market trades at a ~9x PE (Source: Mystockinvesting.com)
In conclusion, with both Courts and Geo Energy Group on offer today, I would still be more tempted to head for Courts with a local presence and feel where I can better gauge its financial health and business performance. It has been a stable player with room for expansion in Malaysia, and coincidentally, Indonesia, as their next destination. Retail growth potential seems far greater than that of coal in Indonesia too.

PS. for a statistical breakdown of all SG-listed IPOs in 2012, do visit "SG IPO Statistics" on this Healthytrading blog. It presents an easy snapshot of all the IPOs at a glance for your analysis and comparisons.

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