Geo Energy Resources (Geo) Stock Analysis: BUY Recommendation & S$0.60 Target Price

Lim & Tan Securities

25 April 2025

Geo Energy Resources: A Compelling Buy with 71% Upside Potential

Investment Thesis: Geo Energy – Positioned for Exponential Growth

We initiate a BUY recommendation on Geo Energy Resources (Geo) with a target price of S\$0.60, based on a DCF valuation (WACC: 12.5%). Geo, a coal-mining company, is poised to benefit significantly from an upcoming state-of-the-art infrastructure development. We forecast EBITDA levels to triple from US\$60 million in FY24 to US\$168 million in FY26F upon completion of this infrastructure. [[1]]

Geo will be able to transport larger volumes of coal more efficiently, save on current tolling costs, and generate additional revenue by charging third-party users. With emerging countries like China and Indonesia still relying on coal for power generation, coupled with potential pro-coal policies, we believe Geo will remain a beneficiary of sustained coal demand. [[1]]

Geo trades at just 5.9x forward P/E with a FY25F/FY26F dividend yield of 5.1%/7.4% respectively, rendering the company an attractive stock to dive into at current levels. [[1]]

Strategic Moves: Expanding Coal Reserves and Production

• In 2024, Geo incurred costs removing overburden and surface debris across its operating mines to improve future coal access and achieve higher production volumes in the coming years. [[1]]
• 2025 is expected to be a better year with the company targeting total coal sales of 10.5-11.5 million tonnes, an increase of 33%-46% yoy. [[1]]
• Its newly acquired TRA coal mine has started to see meaningful contributions of 1.1mln tonnes in FY24. [[1]]
• Geo has acquired an additional 15% of TRA at a 12.5% discount in Mar’25, bringing total effective interest to 75.1%. This will streamline ownership and enhance control over its TRA mining operations. [[2]]
• Production volumes are expected to ramp up steadily over the next few years to 25mln tonnes by FY29, contributing significantly to the bottom line. [[2]]

Infrastructure Investment: Unlocking Bottleneck and Driving Revenue

Geo’s recent US\$150 million investment into a new 92 km hauling road and a jetty will pay off in 2 folds once completed in 1H26. [[2]]

• Firstly, the transportation from Geo’s mines to the port will utilize trucks that can carry three to four times their current load and offer faster and safer navigation compared to the existing route. [[2]]
• Secondly, Geo has the opportunity to establish a new recurring revenue stream by leasing its newly built infrastructure to other miners in the region. [[2]]
• This will clear Geo’s bottleneck of an inefficient transportation system, which will feed into Geo’s earnings once infrastructure is completed. [[2]]

Stock Performance and Key Metrics

• Absolute Return (%): 1M: 12.9, 3M: 20.7, 12M: 12.9 [[3]]
• Bloomberg Code: GERL SP Equity [[3]]
• 3M Avg Daily Trading Vol (k): 6,105.3 [[3]]
• 3M Avg Daily Trading Val (S\$’000): 1,866.1 [[3]]
• Major Shareholders / Holdings: Charles Antonny Melati (17.9%), Master Resources Int (15.4%) [[3]]
• Shares Outstanding (m): 1,414.2 [[3]]
• Market Capitalisation (S\$m): 495.0 [[3]]
• 52 week Share Price High/Low: 0.36 / 0.24 [[3]]

Company Description

Geo Energy Resources is a major Indonesian coal producer with an established track record in operating coal mines, coal production and selling coal throughout the region. [[3]]

Key Financials

Source: Geo Energy, Lim & Tan Research

Sustained Coal Demand in China

Despite China’s increasing commitment to renewable energy, the demand for economic growth far exceeds the power output of existing clean energy sources. As a result, China continues to remain reliant on coal, particularly imports from Indonesia, due to the lower quality of its domestic coal, which results in higher ash and sulfur content comparatively. [[2]]

Given that Geo’s largest customer base is in China, this bodes well for Geo. [[2]]

Attractive Valuations and Growth Upside

Geo trades at 5.9x FY25F P/E, 0.8x P/B and is backed by a dividend yield of 5.1%. We think share price is supported by share buybacks and an increase in key shareholders’ purchases in recent months. [[2]]

Geo Energy: An Indonesian Energy Powerhouse

Geo Energy Resources (Geo) is a prominent energy group in Indonesia, operating four coal mining concessions in Kalimantan and South Sumatra, Indonesia. The coal extracted from these regions is particularly valuable, characterized by its low sulfur and ash content. Additionally, the coal possesses high calorific values, ensuring a consistent energy output when compared to coal from other regions. The strategic location of Geo’s coal mines further enhances their value, as they are situated closer to the port. [[2]]

Integrated Infrastructure Project

Geo is developing an integrated infrastructure project with a road haulage capacity of up to 40-50 million tonnes per year, allows the Group to diversify and expand its value propositions within the energy value chain, as well as support the growth plans of its TRA coal mine. [[3]]

The Group’s business strategy is mainly focused on acquisition of new mining concessions to increase production quantity and at the same time diversify its sources of coal. [[3]]

Customer Base and Offtake Agreements

In 2024, Geo exported around 67% of its revenue through Offtakes with Macquarie Bank, Trafigura and EPR Asia and sold the balance to Indonesian buyers. Macquarie Bank, Trafigura and EPR Asia then sell the coal to buyers in China, South Korea, India and the ASEAN regions, with China remaining as the biggest market for the Group. [[3]]

Reliance on Coal: A Necessity for Economic Growth

Coal serves as a crucial energy source for emerging countries, as coal-fired power plants deliver affordable, reliable, and continuous power that is readily available to meet fluctuating energy demands. Due to limited access to modern, clean energy alternatives, coal remains essential for the growth and development of these nations. [[4]]

As such, it is fair to say China (Geo’s biggest market) and India are the biggest consumer of coal, with China accounting for 56% of the global total, with 91.94 exajoules in 2023. It is followed by India, with 21.98 exajoules, and the U.S., with 8.20 exajoules. [[4]]

China’s Continued Reliance on Coal

Despite China’s commitment to achieving net-zero emissions by 2060, the country initiated the construction of 94.5 gigawatts (GW) of new coal power capacity and resumed 3.3 GW of previously suspended projects in 2024. This marks the highest level of coal power construction in the past decade. [[5]]

China’s Coal Import Surge

In 2023, China saw its coal imports skyrocket, hitting a record 474.42 million metric tons (+61.8% yoy), surpassing expectations that imports would remain between 460 million and 470 million tons. This jump was largely attributed to a rebound in activity post Covid-19 as the economy picked up. [[6]]

The latest Jan/Feb 25 reports indicate that China’s coal imports have continued to increase by 2.1% yoy. [[6]]

Geo’s Strategic Positioning

In light of these trends, we believe Geo is in a good position to benefit from a sustained increase in demand for quality coal as it continues to ride on momentum from China, its biggest market. [[7]]

Coal Prices and the Future Outlook

With the world turning to renewable energy, the long term outlook for coal seems bleak. The International Energy Agency’s annual coal report in December forecast usage to climb through at least 2027, a reversal from the prior year’s assessment, which predicted that the fuel had peaked. [[7]]

Potential Pro-Coal Policies

President Donald Trump is widely recognized for his pro-oil and pro-coal policies. On 18 Mar’24, he announced via social media his intention to increase coal production, stating that his administration would produce “beautiful, clean coal.” [[7]]

With Trump’s advocacy for increased coal usage, we believe the anticipated decline in coal prices due to global green initiatives will be moderated. This uptick in demand for coal is likely to push prices higher, ultimately benefiting Geo in the short to medium term. [[8]]

Acquisition of New Mines

On 18 Oct’23, Geo completed the acquisition of a 58.65% stake in Golden Eagle Energy (GEE), an Indonesian coal mining group listed on the Indonesia Stock Exchange, and a 33% stake in Marga Bara Jaya (MBJ) with ready-for-development infrastructure. As of 31 December 2024, Geo has since increased its stake in GEE to 73.11% and its stake in MBJ to 63.70%. [[8]]

This acquisition secures 275 million tonnes of high-quality TRA coal reserves, extending mining life by 10-15 years and allowing for a production capacity of up to 25 million tonnes per annum. Geo spent most of FY24 stripping (or removing the overburden such as soil, rock, waste) to access the coal deposits at its TRA mine as well as its other existing mines. This has led to an increase in coal production since 4Q24 with full benefits to be seen in FY25. [[9]]

Separately, on 28 Mar’25, Geo announced an acquisition of an additional 15% effective interest in PT Triaryani (“TRA”) for US\$40.8 million, which is at a discount of over 12.5% to the implied valuation of TRA. Upon completion, Geo’s effective interest in TRA will increase to approximately 75.07%, streamlining ownership of TRA and enhancing its control and influence over TRA’s operations. [[9]]

To unlock the value of its TRA mining concession, Geo has a clear, strategic roadmap to progressively increase TRA’s production to 25 million tonnes per annum with the Group’s integrated infrastructure that will yield substantial logistical savings for TRA’s operations. [[9]]

EP Resources, part of one of the largest European energy groups, has committed to offtake 75% to 85% of TRA export volumes for up to 12 million tonnes of coal per annum as part of a life-of-mine coal offtake with Geo. [[9]]

We understand that TRA’s mine has 2P (proved and probable) JORC reserves of 273 million tonnes as of Dec’24, and that Geo is planning for additional drilling and exploration of this coal mine to increase its 2P reserves to over 300 million tonnes. [[9]]

Coal Mine Quality and Lifespan

Geo has 4 concession rights across its operating mines. Geo Energy obtains a strategic advantage stemming from the extensive lifespan and projected coal production of its mines, instilling confidence in long-term clients to engage in supply contracts with the company. Boasting over 330 million tonnes of thermal coal reserves, Geo Energy holds a prominent position in Indonesia. Additionally, its commendably low stripping ratio, approximately 3x to 4x for a large-scale coal operator, equips Geo Energy with resilience against cyclical fluctuations in volatile coal prices. [[10]]

Strategic Infrastructure Investment

Geo, via its subsidiary MBJ, is currently developing a 92 km hauling road and a jetty in South Sumatra and Jambi, Indonesia, to enhance coal export capabilities. This US\$150mln investment will support coal mines in that region, including Geo’s coal mines, which will see capacity reaching up to 40-50 million tonnes per year, with a minimum of 25 million tonnes designated for TRA and the remaining capacity available for lease to other mining operators. [[11]]

In addition to improving infrastructure to enhance Geo’s own efficiency, the 3rd party leasing of the infrastructure can also generate additional revenue streams and cash flow. This project is expected to be completed by mid-2026 with operations to ramp up through 2029. [[11]]

The upgraded infrastructure is expected to be a huge improvement over the current road that Geo uses, which is bumpy, winding with varying road steepness. This makes current transportation of coal from the mines to the jetty slow, dangerous and inefficient. This new road will not only allow companies to increase their load capacity (3x to 4x of their load) of each truck, but also improve the speed, efficiency and safety of the coal transport to and from the coal mine to the jetty. [[12]]

Given that this is the most critical bottleneck in Geo’s operations at present, pursuing this strategic investment would be a sensible move for Geo in the long term. According to Geo, this Integrated Infrastructure will not only ramp up production of their mine but will also have logistical cost savings of up to 10-15 USD per tonne. Assuming that coal prices remain at current levels, Geo will then be able to generate an estimated USD400-USD500 million EBITDA per annum upon full operations forecasted over the next few years. We have factored in steady production increases into our FY25F/26F earnings forecast. [[12]]

The infrastructure would be constructed by CCCC First Harbor Consultants Co. Ltd (“CCCC-FHC”) and Norinco International Cooperation, who have established track records and strong capabilities in the construction and development of transportation infrastructure. Geo will only need to pay upfront costs of approximately 20% of the contract value and the contractor will fund the remaining project cost based on a deferred payment mechanism. This flexible arrangement allows MBJ sufficient time to generate cash flow to make payments nearing the end of the contract. Should the project be delayed, the contractors would be liable for a certain penalty. [[12]]

Investment Recommendation and Valuation

We initiate a BUY rating on Geo Energy with a 12-month target price of S\$0.60, based on DCF (WACC: 12.5%), representing a potential upside of 71.4%. The ramp up of coal production from the newly acquired TRA mine is set to replace current contributions of SDJ/TBR mines once they expiry in 2028. We exclude third-party contributions from the MBJ Infrastructure in our current estimates as it is still under construction. Our target price implies a 10.0x forward P/E and 1.4x P/B. We continue to like Geo Energy’s 1) expected increase in 2025 coal sales, 2) addition of coal reserves, 3) strategic infrastructure investment for long-term growth, and 4) attractive valuations with dividend returns. [[13]]

Geo’s valuations are currently inexpensive at 5.9x FY25F P/E and 0.8x P/B, with a forward dividend yield of 5.1%. Our forecasted 80% yoy increase of FY25F dividends stems from higher profits this year and a 30% dividend payout policy. [[13]]

Peer Comparison

We also note that Indonesian peer Golden Energy & Resources (GEAR), which was previously listed in SGX, has since been taken privatized in Nov 2022 (completed Aug 2023) at a final offer of S\$0.973/share. This implies the take-over P/B valuation based on GEAR’s FY22 financials is 1.45x (NAV of GEAR is US\$0.48, using exchange rate of USD:SGD = 1.4:1), which is significantly higher than Geo’s current P/B of 0.8x. [[14]]

Share Purchases

We also note that in recent months, key shareholders and independent directors have bought into Geo, with the highest price being 50 cts/share. Between 2021-2024, Geo conducted share buybacks of 35 million shares at an average price of 31 cts/share. Subsequently, as part of an offtake deal with EP Resources, 28 million treasury shares were sold to key shareholder Resources Invest AG (ResInvest) for 45 cts – 50 cts/share. These shares were sold at a strong premium of 45% to 61% over Geo’s purchase price, and above the current share price of 35 cts. [[14]]

Major Shareholders and Balance Sheet

Based on latest available information, co-founders Charles Antonny Melati and Huang She Thong (together with deemed family interest in Master Resources International) are the largest shareholders with a total 35.46% stake. A further 7.21% stake of Geo Energy is held by substantial shareholder Heah Theare Haw. Another 6.75% is owned by ResInvest. Approximately 45% of total outstanding shares are held in the hands of the public. [[16]]

Geo’s balance sheet remains healthy with a net gearing of 20.4%. While Geo was net cash in FY22, the company shifted towards a geared position to generate more coal through an increase in stakes of its coal mines. A deferred payment mechanism for the state-of-the-art MBJ infrastructure is only due 2 years later when the project is completed, allowing Geo to generate cash flow to pay off the investment. [[16]]

Additionally, given the offtake agreements with their counterparties as explained above, Geo can continue to generate positive cash flow to build up their cash balances. As of FY24, interest coverage remains healthy at 3.4x. [[16]]

Shareholder Questions and Company Responses

We highlight key questions raised by shareholders and answered by Geo Energy ahead of the AGM on 25 Apr’25. [[17]]

• Q: Based on past experiences, does the demand for thermal coal fall significantly during periods of economic slowdown or recession? [[17]]
  • A: Thermal coal demand is generally quite resilient due to its role as a stable and cheapest source of energy. Developing countries like India, China, and parts of Southeast Asia continue to rely on coal to support electrification, industrial activity, and energy security. In these markets, coal remains essential for grid stability and is often more accessible than alternatives like natural gas or renewables. This is particularly important when there is an economic slowdown or recession. [[17]]
• Q: Is the domestic market in Indonesia a significant contributor to Geo Energy’s revenue? [[17]]
  • A: In FY2024, 32% of the Group’s revenue were attributed to domestic market in Indonesia. This is mainly due to the Domestic Market Obligation (“DMO”) mandated by the Indonesian government, where coal miners are required to sell 25% of its production domestically. [[17]]
• Q: Can Geo Energy remain profitable with the price of thermal coal (ICI4) below US\$50 per tonne? [[17]]
  • A: Yes, the Group currently has a cash profit of around US\$10 per tonne when ICI4 coal price has been ranging between US\$48 – 50 per tonne in the last few months. Further, the Group has a resilient cost structure whereby some of its cash costs move in tandem with ICI4 coal prices. [[17]]

Key Risks to Consider

• Drop in coal prices. As Geo primarily sells coal, any decline in coal prices will inevitably result in lower earnings for the company. [[18]]
• Weather issues. As a miner, Geo’s operations are affected by adverse weather conditions such as heavy rain. If FY25’s weather conditions remain bad, earnings will be slightly impacted by slow mining processes and transportation, as seen in 2024. [[18]]
• Delay in infrastructure investment. Geo’s earnings boost is expected to materialize upon the completion of the road and jetty. If there are any delays, our forecast for future earnings may become inaccurate, as a portion of the earnings is anticipated to come from the increased sale of coal resulting from Geo’s enhanced transportation capabilities. [[18]]

Key Management Team

Geo Energy is led by a team of experienced professionals with a proven track record in the coal mining industry. [[19]]