Geo Energy Resources Limited: Q3 2024 Net Profit Decline of 39%

Business Description

Geo Energy Resources Limited is engaged in the mining and trading of coal, primarily in Indonesia. The company operates several coal mines including SDJ, TBR, BEK, and TRA, with significant sales to countries like China and India. The Group’s core business is coal mining, and it has been expanding its operations and infrastructure projects, such as the acquisition of PT Marga Bara Jaya (MBJ) and an Engineering, Procurement, and Construction (EPC) contract with CCCC First Harbor Consultants Co., Ltd and NORINCO International Cooperation Ltd.

Industry Position and Market Share

The company is a key player in the Indonesian coal market, one of the world’s largest exporters of coal. Its main competitors include other major coal mining companies in Indonesia and globally. Geo Energy benefits from a strong market in China and India, where coal demand remains high despite global shifts towards renewable energy.

Revenue Streams and Competitive Advantage

Geo Energy’s primary revenue stream comes from coal mining operations. The company has optimized its mining plans and opened new mining pits, improving its strip ratios and reducing production costs. Its customer base largely consists of industrial consumers in China and India. The company’s competitive advantage lies in its strategic geographic location, which offers lower logistical costs and proximity to major coal consumers.

Financial Statement Analysis

Income Statement

• Revenue for Q3 2024 was US\$84.3 million, down 24% from Q3 2023.
• Net profit for Q3 2024 was US\$7.0 million, a 39% decrease from Q3 2023.
• Gross profit margin declined from US\$15.8 million in Q3 2023 to US\$14.1 million in Q3 2024.

Balance Sheet

• Total assets as of 30 September 2024 were US\$949.1 million, compared to US\$937.4 million as of 31 December 2023.
• Total liabilities decreased to US\$421.4 million from US\$437.8 million as of 31 December 2023.
• Cash and bank balances stood at US\$85.7 million as of 30 September 2024.

Cash Flow Statement

• Operating cash flow for the first nine months of 2024 was US\$7.2 million, significantly improved from negative US\$23.8 million in the same period in 2023.
• Investing cash flow showed a net outflow of US\$24.4 million.
• Financing cash flow reported a net outflow of US\$34.9 million, primarily due to dividend payments and bank borrowings.

Dividend Information

The company has declared an interim dividend of 0.2 SG cent per share for Q3 2024. This is lower compared to the previous interim dividend of 0.4 SG cent per share.

Key Findings and Recommendations

Strengths

• Strong market position in the Indonesian coal industry.
• Improved cash profit per tonne due to better strip ratios and optimized mining operations.
• Lower effective tax rate, resulting in significant tax savings.

Risks

• Significant decline in net profit and revenue compared to the previous year.
• Higher finance costs due to term loan facilities.
• Increased general and administrative expenses following acquisitions.

Special Actions

The company is actively involved in expanding its operations through acquisitions and infrastructure projects, such as the step-up acquisition of PT Marga Bara Jaya and the EPC contract with CCCC-FHC and Norinco.

Recommendations

If Currently Holding the Stock

Investors should exercise caution and consider holding onto the stock due to the company’s strategic actions to improve profitability and strong market position. However, they should closely monitor financial performance in the coming quarters.

If Not Currently Holding the Stock

Potential investors should consider the risks associated with declining profits and increased expenses. It may be prudent to wait for the company’s financial performance to stabilize before making an investment decision.

Disclaimer

This analysis is based on the provided financial report for Geo Energy Resources Limited as of Q3 2024. It is not financial advice and should not be taken as a recommendation to buy or sell any securities. Investors are advised to conduct their own research or consult with a financial advisor before making any investment decisions.