• GEO is set to have a record year ahead as coal prices remain resilient. ICI 4 prices (4,200 kcal) are at more than 10-year highs. While we expect coal prices to soften in 2H2021, dynamics favour coal miners given the buoyant demand from India and China. On the other side of the equation, there’s less risk of an oversupply-related correction for coal markets as ESG pressure has pushed
capital toward clean energy (e.g., solar, electric vehicles, wind farms), thus limiting rapid coal supply growth.
• GEO’s two key mines have a total estimated coal reserve of 84 million tonnes, based on a Joint Reserves Committee (JORC) Compliant report issued in December 2020.
• Our DCF calculation (13.5% WACC and no terminal value) estimates a fair value of S$0.42 based on a conservative 6- year mine life and 66mn tonnes production.
• Upgrade to Outperform as we raise our fair value to S$0.42. We forecast GEO will generate US$247mn of free cash flows in 2021 and 2022, more than its current market cap. It currently trades at only 2.0x 2021F P/E and offers an
above-industry 9% forward div yield.