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Research Document
Company: Energy Earth PCL
11 February 2013
1
eneRgy eaRth BUY
coal mining and trading
share price:
target:
Very strong growth with high margins
11 February 2013
DaX index
7,652
market cap.
€521m / $697m
Free Float
€251m
12 month high / Low (€)
8.85/3.98
Daily trading volume
36m
no. of shares (m)
2,605
Full year 2012
april 2013
Bloomberg / Reuters / Frankfurt
eaRth:tB/eaRt.BK
1ee gF
Year end 31 December
(THBm)
€0.20
(thB 8.00)
€0.275
(thB 11.00)
2011
2012e
2013e
sales
4,685
9,850
13,495
17,003
650
1,986
3,166
4,171
eBIt
627
1,856
2,974
3,754
net income
396
1,274
2,059
2,612
(THB)
2011
2012e
2013e
2014e
eps
0.17
0.49
0.70
0.79
cFps
(0.41)
(0.64)
0.18
0.41
Dividend
0.00
0.20
0.28
0.31
(%)
2011
2012e
2013e
2014e
eBItDa margin
13.9
20.2
23.5
24.5
eBIt margin
13.4
18.8
22.0
22.1
Dividend yield
0.0
2.5
3.5
3.9
(x)
2011
2012e
2013e
2014e
pe
46.3
16.4
11.5
10.2
pcF
nm
nm
44.8
19.3
Performance (%)
-1M
-3M
-12M
absolute
9.6
17.6
69.5
phihakendr family
35.62
Khamdee family
13.02
uBs
3.27
Free float
48.09
»
coal meets 25% of world energy needs. coal has long
been used as a source of energy but has environmental issues. Wide availability and relatively low costs still
make it a preferred energy choice for many developing countries. china and India are driving strong annual world coal demand with some 75% of the world’s
new coal plants planned to be built in china and India.
mature economies in europe and Japan though are increasingly likely to return to coal to meet their energy
needs.
»
sales doubled in 2012. net profits trebled. For 2013 energy earth is targeting sales growth of 30% to 40% with
higher net margins. strong growth is also planned for
2014 and beyond. energy earth is highly ambitious with
major international aims.
»
enhancing its value chain. energy earth began as a coal
trader and now meets half of its sales needs through
own mine output. Increasing output from myanmar and
new mine acquisitions suggest this should approach
80% of sales. the group plans to own more jetties, transhipment barges and infrastructure to further boost
margins.
»
sound finances. energy earth acquires mines through
share swaps. mine capital equipment is paid through future coal sales to china. sharply rising dividends are expected. the current yield on 2012 results may be around
2.5%.
»
Dual listed in thailand and germany. energy earth is
the largest listed company on the maI segment of the
Bangkok stock exchange. since January 2013 the shares
have had a dual listing in Frankfurt. a range of valuations
suggest the shares are worth at least thB 11 (€0.275).
however, with strong growth and sound financing the
medium-term potential is even greater.
2014e
eBItDa
Shareholders (%)
Energy Earth is Thailand’s second largest listed coal group.
Most of its coal comes from Indonesia and increasingly
from its own open-surface mines. Most sales go to power stations in China with only 20% of sales made in Thailand. Energy Earth is opening its first coal mine in Myanmar where it sees major potential for further strong sales
growth to India. Longer term Energy Earth plans to expand
its regional base in Asia as well as subsequently move into
underground mining in South or North America.
note: €1 = thB 39.9 as of 11 February 2013
source: Bloomberg
please refer to important disclosures at the end of this report
11 February 2013
2
Contents
I. Investment recommendation 4
II. Share price development and valuations
5
III. History, management, strategy and SWOT
8
IV. Activities 12
V. Financials18
Appendix I – World coal market
21
Appendix II – Listed coal companies
23
Appendix III – Thai stock market
24
Robert Willis
Managing Director Research
[email protected]
Isabell Friedrichs
Senior Analyst
[email protected]
+49 (89) 1890474-0
Energy Earth share price development (THB)
11 February 2013
3
I. Investment recommendation
Thai business with coal from
Indonesia and Myanmar
Energy Earth Public Company Limited is incorporated and listed in Thailand with a dual listing in Germany. Most of its business is conducted elsewhere in Asia. The group sources its coal from Indonesia and increasingly
from its own open-surface mines. A new mine opens next month in Myanmar which will enhance opportunities for the group to sell coal to India.
Most sales to China, then
Thailand and India
Some 75% of the group’s coal is now sold directly to China’s leading power groups. Another 5% of sales are to India. Importing, separating and
distributing bituminous coal to various markets in Thailand accounts for
just 20% of group sales. Around 100 Thai customers include small, medium and large energy and industrial plants including in the cement, textile,
paper and food industries.
Strong and rising coal
demand
Energy Earth has three key factors supporting spectacular earnings
growth. Demand for coal is strong and rising especially in China and India, the group’s two main markets. Some 75% of the world’s new coal
plants are planned to be built in China and India. Here coal’s wide availability and relatively low cost mean environmental issues have been given less importance in the need for economic growth. Increased cleaner
coal and carbon capture and storage technologies though may support
demand in some developed markets. Coal supplies 25% of world energy
needs, but could pass oil as the preferred source in the next five years
and account for 33% of world annual energy demand within 40 years.
Deepening and broadening
the value chain
Buying coal mines and adding other parts to the value chain enhance
supply stability as well as raises profit margins. Energy Earth began as a
coal trader and now internally meets half of its sales needs through own
mine production. This proportion should approach 80% through new
mine acquisitions and increased output from the new Myanmar mine. The
group also plans in the long term to own more jetties, transhipment barges and infrastructure to reduce bottlenecks and to further improve profit
margins.
Solid prices
High oil prices support the price of coal. With global oil reserves declining rapidly the long-term outlook for coal prices remains positive in most
regions.
Longer term ambitions
Longer term Energy Earth plans to expand its regional sales and mining
base in Asia to nearby countries. A subsequent move into underground
mining may follow, possibly in South or North America.
Strong sales and earnings
growth to continue
In 2012 Energy Earth’s sales more than doubled and net profits trebled.
For 2013 we expect sales growth of around 37% with margins rising further for a net profit growth of over 60%. Strong sales and earnings growth
is also planned for 2014 and subsequent years.
Sound financing and high
dividends
Energy Earth has low debts as it acquires mines through equity swaps
and mine capital expenditures are paid via future coal sales to China.
These barter deals can be up to 30% of revenues. Dividends are to be
paid at around 40% of underlying profits. This suggests a current yield
on 2012 results of 2.5%.
Frankfurt dual listing
Energy Earth is the largest listed company on the MAI segment of the
Bangkok exchange. Since January 2013 the shares have had a dual listing
in Frankfurt. A range of valuations suggest the shares are worth at least
THB 11 (€0.275). However, with strong annual sales and earnings growth
plus a sound financing structure the medium term potential is even greater.
11 February 2013
4
II. Share price development and valuations
a) Share price
Shares listed in Bangkok and
Frankfurt
Energy Earth has 2,605 million ordinary shares in issue with a par value of
One Thai Baht each. Each share has one vote. The shares are dual listed
in Bangkok and Frankfurt. Foreigners are restricted to owning 49% of the
group.
Energy Earth currently has some 5,000 shareholders. The largest shareholder group is the Phihakendr family with 35.62%. This includes the
chairman and chief executive Phisudhi Phihakendr and his three director
sons. The Khamdee family owns a further 13.02%. This includes the managing director Khajohnpong Khamdee. The largest institutional shareholder is UBS at 3.27%.
Warrants
Energy Earth’s shares are listed on the Thai Stock Exchange under the
alternative investment (MAI) segment. Daily volumes are some 36 million
shares or around 300 million Thai Baht (€7.5m a day).
The group has a Series 3 warrant outstanding with Series 4 planned
shortly. As of September 2012 some 394 million Series 3 warrants were
outstanding. One warrant buys 1.023 shares at THB1.466. They expire in
2016.
b) Valuations
Thai coal companies
Energy Earth is Thailand’s second largest listed coal group. Comparable
companies can be divided into two categories a) Thai coal groups (trading and mining) and b) international coal mining companies.
Simple PE ratios suggest Energy Earth is worth THB 8.2 (€0.205) and
THB 8.4 (€0.210) per share on 2013 and 2014 forecasts. An average of
forecast EV/EBIT, EV/EBITDA and EV/Sales multiples suggest a value of
THB 6.0 (€0.150) for 2013 and THB 6.33 (€0.159) for 2014.
PE and PCF valuations
Shareprice
(THB)
Marketcap (€)
PE (x)
2012e
2013e
PCF (x)
2014e
2012e
2013e
2014e
Banpu
371.0
2,529
8.9
9.1
8.4
5.6
5.3
4.2
Lanna Resources
23.9
210
7.9
6.5
6.0
4.5
4.2
3.9
Asia Green Energy
3.6
118
Average*
Energy Earth
8.0
521
nm
19.6
17.6
44.8
36.9
15.6
8.4
11.7
10.7
5.1
4.8
7.9
16.4
11.5
10.2
nm
44.8
19.3
Implied value (THB m)
10,647
24,088
27,848
nm
2,508
10,895
Value per share (THB)
4.1
8.2
8.4
nm
0.9
3.3
EV/EBIT, EV/EBITDA and EV/sales valuations
EV/EBIT (x)
EV/EBITDA
(x)
EV/sales (x)
2012e
2013e
2014e
2012e
2013e
2014e
2012e
2013e
2014e
Banpu
7.9
8.1
7.1
6.0
6.0
5.0
1.4
1.4
1.2
Lanna Resources
3.4
3.4
3.3
3.1
2.9
2.7
0.7
0.6
0.6
Asia Green Energy
58.1
15.5
14.3
37.5
13.3
12.1
1.2
1.0
1.0
Average*
5.7
9.0
8.2
4.6
7.4
6.6
1.1
1.0
0.9
Energy Earth
14.3
9.1
7.3
13.4
8.6
6.5
2.7
2.0
1.6
Implied value (THB m)
7,539
23,182
27,186
6,079
19,779
23,949
7,884
9,949
12,033
Value per share (THB)
2.9
7.9
8.2
2.3
6.7
7.2
3.0
3.4
3.6
Sources: CM-Equity, Bloomberg, Reuters; * excluding extremes
11 February 2013
5
International coal
companies
There are several listed coal groups involved in mining, trading and investments. Some have other diversified activities and these companies
have largely been excluded from comparable valuations. There are nonetheless many different risks, taxes, currencies, stage of development and
strategies amongst the various peer companies.
(See Appendix II page 21)
Simple PE multiples suggest a fair value for the group of THB 10.8 (€0.272)
for 2013 and THB 11.5 (€0.289) on 2014 forecasts.
PE and PCF valuations
Country
Share
price
Marketcap (€)
PE (x)
2012e
China Shenhua Energy
China
Coal India Limited
India
2013e
PCF (x)
2014e
2012e
2013e
2014e
24.8
59,789
11.0
10.6
9.6
6.8
6.1
5.8
338.8
29,316
13.1
11.6
10.3
11.5
10.1
8.2
China Coal Energy
China
8.2
12,415
12.1
12.5
10.8
8.1
5.9
5.9
Shanxi LuAn Environ. Energy
China
19.4
9,422
18.7
17.3
14.3
11.6
9.3
9.1
Yanzhou Coal Mining Co Ltd
China
24.1
6,646
14.8
22.3
21.3
8.9
13.4
8.5
Consol Energy
US
31.7
5,403
22.3
28.8
15.5
7.5
7.4
5.8
14.2
5,380
13.6
18.7
14.1
13.8
6.7
6.9
175.7
5,292
8.4
9.8
9.3
10.0
11.7
11.1
Shanxi Xishan Coal & Elect Power
China
Exxaro Resources Limited
S. Africa
Peabody Energy Corporation
US
23.7
4,761
13.2
17.4
10.6
4.9
5.5
5.2
Jizhong Energy Resources
China
15.0
4,148
14.7
16.3
14.4
6.6
10.7
7.5
PT Adaro Energy
Indonesia
Guizhou Panjiang Refined Coal
China
Shanxi Lanhua Sci-Tech Venture
China
Bukit Asam
Indonesia
New Hope Corporation Limited
Australia
Jastrzebska Spolka Weglowa
Poland
1570
3,879
12.2
13.9
10.1
1.4
7.1
8.1
17.0
3,369
18.7
20.5
16.6
15.7
14.5
11.4
22.8
3,121
13.4
13.3
10.9
11.7
13.3
11.7
15,300
2,718
11.1
12.9
10.8
11.2
11.4
9.6
4.2
2,700
20.9
35.4
31.7
81.0
20.8
28.1
93.4
2,637
9.7
14.6
11.4
5.3
5.6
4.8
Pingdingshan Tianan Coal Mining
China
9.2
2,604
14.6
14.8
12.6
7.1
6.3
4.9
Whitehaven Coal
Australia
3.0
2,350
27.5
nm
29.7
nm
nm
19.7
9,000
2,313
22.4
24.9
35.2
14.6
16.2
23.0
50.6
2,262
14.6
13.7
13.9
17.9
15.8
14.4
Bayan Resources
Indonesia
Alliance Holdings
US
Natural Resource Partners LP
US
22.0
1,745
12.0
12.2
12.0
9.9
9.9
10.0
Walter Energy
US
36.9
1,726
nm
26.6
12.1
5.6
6.1
4.8
252.2
1,649
12.9
10.9
11.6
10.6
8.7
9.1
8.2
1,357
nm
nm
nm
3.8
3.5
3.1
3.6
1,289
46.6
15.5
9.3
15.5
7.8
6.7
135.5
1,108
13.4
11.2
7.4
6.8
6.3
4.9
5.8
913
nm
nm
nm
3.2
3.8
2.0
83.8
879
11.1
13.8
13.3
3.3
3.4
3.2
Semirara Mining Corp
Philippines
Alpha Natural Resource
US
Mongolian Mining Corporation
Hong Kong
Lubelski Wegiel Bogdanka SA
Poland
Arch Coal Inc
US
New World Resources
Czech
Cloud Peak Energy
US
17.1
779
6.2
10.0
8.8
4.1
4.7
4.2
Yancoal Australia
Australia
0.9
676
12.4
nm
3.7
1.9
5.2
2.1
Berau Coal
Indonesia
250.0
673
2.9
2.8
2.7
2.3
2.2
2.1
Indika Energy
Indonesia
1460
587
6.9
8.4
5.6
7.2
4.4
3.6
Gansu Jingyuan Coal Ind & Elec
China
25.6
547
62.5
58.3
53.4
24.4
38.3
43.4
Winsway Coking Coal Holdings L
Hong Kong
1.2
436
nm
3.5
6.7
3.2
nm
nm
Geo Energy Resources
Singapore
0.6
391
24.5
17.8
13.9
23.9
16.9
8.7
Rhino Resource Partners L.P.
US
14.3
296
10.7
14.3
16.0
6.4
7.4
7.6
SouthGobi Resources
Hong Kong
16.8
295
nm
nm
108.4
3.1
nm
8.3
16.1
15.5
14.6
10.4
9.9
9.5
Average*
16.4
11.5
10.2
nm
44.8
19.3
Implied value (THB m)
20,500
31,959
38,278
nm
5,187
13,058
Value per share (THB)
7.9
10.8
11.5
nm
1.8
3.9
Energy Earth
Thailand
8.0
521
Sources: CM-Equity, Bloomberg, Reuters; * excluding extremes
11 February 2013
6
International coal companies average EV/EBIT, EV/EBITDA, EV/Sales
multiples suggest a fair value for Energy Earth of THB 9.4 (€0.236) per
share on 2013 forecasts and THB 9.7 (€0.243) on 2014 forecasts.
EV/EBIT, EV/EBITDA and EV/sales valuations
EV/EBIT (x)
2012e
2013e
EV/EBITDA (x)
2014e
2012e
2013e
EV/sales (x)
2014e
2012e
2013e
2014e
China Shenhua Energy
7.7
7.3
6.4
5.8
5.4
4.9
2.1
2.0
1.8
Coal India Limited
11.2
9.4
8.5
10.9
9.3
8.2
3.0
2.6
2.4
China Coal Energy
10.1
10.2
10.2
7.4
7.5
6.9
1.4
1.4
1.4
Shanxi LuAn Environ. Energy
11.5
12.1
11.6
8.1
7.6
7.3
2.5
2.2
1.9
11.2
13.5
15.4
9.2
9.9
9.3
2.0
1.9
1.7
18.9
15.9
11.0
9.0
8.4
6.5
2.0
2.0
1.8
Yanzhou Coal Mining Co Ltd
Consol Energy
Shanxi Xishan Coal & Elect Power
8.1
9.7
10.0
6.2
6.9
5.8
1.5
1.4
1.2
6.5
9.3
7.7
17.2
19.4
13.2
4.3
5.0
4.1
Peabody Energy Corporation
11.2
14.5
9.8
6.8
8.3
0.6
1.5
1.5
1.3
Jizhong Energy Resources
11.4
12.3
10.2
7.7
7.4
6.4
1.1
1.0
0.9
Exxaro Resources Limited
PT Adaro Energy
6.5
7.2
5.9
5.5
5.8
4.5
1.8
1.7
1.5
Guizhou Panjiang Refined Coal
15.1
16.9
13.6
11.5
11.3
9.4
3.6
3.3
2.7
Shanxi Lanhua Sci-Tech Venture
10.4
9.9
7.7
9.1
8.9
7.0
3.2
3.0
2.4
9.0
9.5
8.2
9.2
9.4
7.8
2.9
2.7
2.2
22.4
31.0
23.9
17.4
22.5
18.1
5.1
5.6
5.3
8.9
12.7
9.7
5.3
6.1
5.2
1.5
1.5
1.4
Bukit Asam
New Hope Corporation Limited
Jastrzebska Spolka Weglowa
9.1
9.2
10.1
6.0
5.8
6.2
0.9
0.8
0.8
Whitehaven Coal
Pingdingshan Tianan Coal Mining
31.0
50.9
16.6
22.0
25.3
11.5
4.9
4.1
2.9
Bayan Resources
10.9
26.1
22.5
8.0
21.2
13.2
2.1
2.2
2.0
Alliance Holdings
9.8
8.2
10.1
5.9
5.3
5.3
1.7
1.5
1.5
Natural Resource Partners LP
12.5
12.8
13.3
10.1
10.3
10.2
8.6
8.7
8.8
46.6
18.0
10.1
9.9
8.9
6.0
1.8
1.7
1.5
Semirara Mining Corp
15.1
11.9
11.0
10.7
9.0
8.6
3.8
3.5
3.7
Alpha Natural Resource
nm
nm
nm
6.1
9.2
5.9
0.6
0.8
0.7
Mongolian Mining Corporation
nm
11.0
7.8
15.3
8.6
6.3
4.0
2.5
1.9
Lubelski Wegiel Bogdanka SA
11.6
9.4
6.3
6.7
5.7
4.3
2.6
2.3
1.8
40.5
58.5
19.8
7.4
9.2
6.6
1.3
1.3
1.2
14.6
12.4
9.1
4.9
4.5
4.2
0.9
0.9
0.9
Walter Energy
Arch Coal Inc
New World Resources
Cloud Peak Energy
2.4
3.0
3.2
1.7
1.9
2.0
0.4
0.4
0.4
Yancoal Australia
nm
59.0
13.7
27.9
18.4
7.8
3.1
2.6
2.0
3.5
4.2
2.1
2.9
3.2
1.8
0.7
0.6
0.5
Indika Energy
Berau Coal
21.6
17.2
9.4
9.8
7.7
5.8
2.1
1.7
1.4
Gansu Jingyuan Coal Ind & Elec
51.8
47.8
43.6
36.9
35.7
32.1
2.0
1.9
1.8
Winsway Coking Coal Holdings L
nm
6.2
6.7
29.8
6.2
5.8
0.9
0.8
0.6
Geo Energy Resources
16.5
11.1
8.1
11.3
8.1
6.0
5.1
3.2
2.6
Rhino Resource Partners L.P.
11.3
17.2
20.8
6.1
6.6
6.7
1.5
1.5
1.4
SouthGobi Resources
nm
21.3
9.7
nm
19.3
7.1
4.2
2.7
1.4
Average*
12.2
11.8
10.9
10.3
9.3
8.0
2.7
2.2
2.0
14.3
9.1
7.3
13.4
8.6
6.5
2.7
2.0
1.6
Implied value (THB m)
Energy Earth
19,623
31,630
37,149
17,471
25,775
29,712
23,133
25,835
29,774
Value per share (THB)
7.5
10.7
11.2
6.7
8.7
8.9
8.9
8.8
9.0
Sources: CM-Equity, Bloomberg, Reuters; * excluding extremes
11 February 2013
7
III. History, management, strategy and
SWOT
a) History
Founded in 2007 for coal
trading
Energy Earth is a young group which only began in January 2007 with
the company Energy Perfect. This initially focused on coal importing and
distribution in Asia. The group’s first coal processing plant began operations in April 2007 at Sriracha, Chonburi to the south of Bangkok. In 2010
a second plant was started in Ayutthaya, north of Bangkok. The wholly-owned company Energy Perfect is now responsible for coal stockpiling and logistics operations in Thailand.
Most sales to China
Group marketing is done through the holding company Energy Earth.
Some 75% of coal sales currently go directly to China’s big power station
companies. Only 20% of group sales go to the Thai market.
Deepening value chain
through mine acquisitions
Energy Earth has rapidly deepened its value chain by acquiring coal
mines. The wholly owned company PT Tri Tunggal Pitriati was effectively
established in December 2007. This company has focused on coal mining
on the Indonesian island of Kalimantan. One mine concession is for 1.8
million tonnes of coal and another has an exclusive right for 5.6 million
tonnes.
Broadening value chain into
other countries
Last year Energy Earth acquired its first mine in Myanmar (Burma). Mine
production should begin in the second quarter of 2013. Another larger Indonesian mine is currently being acquired. Purchases of Indonesian
mines have been made through equity swaps into Energy Earth’s shares.
The Myanmar mine is based on a cooperation agreement.
Listed through reverse
takeover in 2011
In December 2010 the group made a reverse takeover of Advance Paint
and Chemical (Thailand) to obtain a listing on the Thai Stock Exchange.
Advance Paint and Chemical (Thailand) Public Company Limited (APC)
had been suspended for non-compliance. The group’s name was changed
to Energy Earth and share trading began as Energy Earth in May 2011. In
January 2013 a dual listing was obtained for the shares in Frankfurt.
b) Management
Experienced management
The management board has 13 members of which five are independent
directors. Four of the independent directors form the audit committee.
Phisudhi Phihakendr is the Chairman and chief executive of the group. He
has degrees from the University of Memphis and is a successful businessman. Prior to Energy Earth he worked at 3M Thailand and Levi’s Thailand
then became vice chairman and president of Robinson Department Store
Thailand. He was subsequently chief information officer for Central Retail
Corp and executive director of Thai Mart Retail Company.
The Managing Director Khajohnpong Khamdee is nonetheless the main
person responsible for running the Energy Earth group. He has a degree
from Rajabhat Rajanagarindra University. His past employments include
being chief accountant at Hong Aue Co and assistant managing Director
of Brother Auto Parts & Engineering. He became a vice president of Thai
Mart Store before becoming finance director of Thailand Anthracite.
11 February 2013
8
The three sons of the chairman are all directors since 2010. Phiroon
Phihakendr is an IT specialist. University educated in the US, he is also
managing director of WTEC of Thailand. Phipat Phihakendr is university
educated in the US. His past experience is in marketing and brand management. Phiboon Phihakendr, has also been university educated in the
US and China.
Miss Kanchana Chakvichitsopon is university educated and was previously general manager at Robinson Department Store and assistant managing director at Winstore. Thanawat Pratoomsuwan, another university
graduate, worked at KasikornBank for 17 years. Nugoon Sri-In has a degree in mechanical engineer. He was previously a board member of several companies and chief executive of Interlink Logistics and Distribution.
Energy Earth’s five independent directors are Parada Bunnag, Somkiat Sukdheva, Suriyaporn Bunchai, Eknarin Thammaraks and Thongchai
Watanasoponwong. Parada Bunnag is also the group’s vice chairman.
The audit committee is comprised of the independent directors Somkiat Sukdheva, Suriyaporn Bunchai, Eknarin Thammaraks and Thongchai
Watanasoponwong.
Some 170 employees
Energy Earth has some 170 employees with 40 working in offices and 130
employed in factories and warehouses. Of these some 40 are at group
mines.
c) Strategy
Trading and sales growth to
China and India
Energy Earth is focused on coal. Developing from its South East Asia
base the group has long-term aims to be able to sell coal everywhere.
Growth has initially been based on the fast growing Chinese economy.
Sales to China currently account for 75% of the group’s total. The second
strong growth market for the group is India but which currently accounts
for just 5% of the group’s total sales. China and India together account
for 55% of the world’s coal consumption. Long-term contracts to supply
power plants in China and India are for some 16.5 million tonnes of coal
or almost twice the group’s total 2012 sales. India may offer Energy Earth
the fastest growth potential for the next few years with a new mine in
neighbouring Myanmar well positioned for export to the nearby market.
Demand for coal in Thailand has also seen solid annual growth. It has
risen from less than 2 million tonnes in 1998 to 18 million tonnes today.
Coal represents 12% of the country’s energy consumption compared to
just 2% fifteen years ago.
Annual mine acquisitions
Under a five year plan Energy Earth aims to buy new coal mines every
year to enhance its supply chain. New nearby countries for coal sources in the medium term could possibly including Papua New Guinea and
Laos.
Higher grade coal supplies
sought
To date the group only has open-surface mines. Energy Earth nonetheless aims to find and secure higher quality coal mines containing less
moisture and impurities. Generally this suggests developing underground
mines where the coal has a higher energy value. These mines require different expertise and knowledge that the group may need to gain through
acquisitions. Energy Earth is accordingly looking at the US and Colombia.
These are the world’s fourth and fifth largest coal exporters, but Colombia does not export any of the higher quality metallic (coking) coal. Supplying higher grade coals which emit fewer fumes would help the group’s
strategy to reduce its exposure to any increased environmental pressures
by its consumers, particularly China which has some seen major pollution
issues.
Further deepening of the
value chain
Energy Earth’s strategy is to further deepen and widen its value chain.
This is seen as a way to increase stability and control of supplies as well
as to further increase the group’s already high profit margins. Infrastructure ownership plans include jetties, transport and shipment barges for
coal.
11 February 2013
9
Possible coal fired power
stations
Building a power plant near to coal mines is also under active consideration with Energy Earth seeking co-investment partners. Cutting coal
transport costs to sea and instead exporting electricity should improve
margins. A coal fired power plant in Myanmar could supply electricity to
neighbouring Thailand. A power plant in Indonesia is also being considered.
Cost controls
Pursuing strong cost controls includes mine equipment and infrastructure financing. The group uses Chinese mine equipment suppliers who
accept payment by deferred coal deliveries. This means the group has
much greater access to new mining equipment than by just using its own
finances.
Tax limiting strategies include acquiring only small mines. In Indonesia
mines are initially 100% owned, but ownership is cut in stages from the
sixth year onwards. After ten years Energy Earth is only allowed to own
49% of an individual Indonesian coal mine. By buying smaller mines the
group seeks to exhaust these deposits quickly and so limit the dilution
of ownership.
Targets
Energy Earth has a general target of obtaining some 30% gross profit
margins on a mine over its working life. The group has a debt to equity
target policy of less than two times and targets a return on capital employed of more than 20%.
11 February 2013
10
d) SWOT analysis
Strengths
Weaknesses
Management – are highly experienced in coal
trading activities and have developed wider experience in the coal mining business.
Key customer relationships – have been built, especially with the big five Chinese power groups
.
Supply agreements – with local Indonesian mine
companies are built on long term relationships.
This includes providing extensive social and welfare assistance.
Own mines – mean the group is increasing its self
sufficiency and has a greater control on costs.
Capital equipment costs – for mines are deferred
by barter agreements with payments to be made
through future coal deliveries.
Opportunities
Oil price – is volatile and any periods of sharp
declines could see coal demand fall relative to
oil. However, lower energy prices could stimulate
economic growth and so raise energy demand.
Supply shortages – the group can sell all the
coal it mines so it continually needs to secure
new coal supplies. Energy Earth needs to buy
independent supplies to meet its demand and
growth ambitions.
Bottlenecks – can occur at transport from mines,
jetties and shipping meaning more investments
are needed.
Currencies – most transactions are in US Dollars
but coal mining costs are mostly in Indonesian
Rupiah. Sales to Thailand are in Baht. China has
Renmimbi and India has Rupees but the group
does not undertake currency hedging.
Threats
International expansion – sourcing can be further diversified outside South East Asia.
Chinese market – continues to see very strong
growth. A move into higher quality coal grades
could further enhance earnings.
India – has a fast rising demand for coal. Energy
Earth’s new Myanmar mines are ideally located
to supply the Indian market.
Power plants – joint developments near the
group’s coal mines could generate electricity
and raise margins.
Higher quality coals – could bring new opportunities and markets. However, this suggests underground mining with its different risks.
Rain – excessive amounts can lead to flooding
which could disrupt mining activities or industrial demand. Most mine roads are only dirt.
Competition – there are many small competitors
but the market is global with coal a basic commodity.
Environment – long term issues could change
leading to more restrictions or new post mining
restoration costs. Popular environmental pressure in China may slow the growth in coal demand for use in energy generation.
Volcanoes – Indonesia has historically seen some
of the world’s largest and most catastrophic
eruptions.
Political risks – Myanmar is a new opportunity
but with little track record. Policies, regulations
or taxes could change in any of the countries
where the group operates.
Sources: CM-Equity
11 February 2013
11
IV. Activities
East Asian trading base
Although Energy Earth Public Company Limited is a Thai listed company
most of its coal is sourced from Indonesia and most of its sales go to
China. Historically the young company focused on trading coal. Energy
Earth has built an experienced coal purchasing and selling team. Sales
and marketing activities are based around market intelligence as well
as existing relationships. Pure trading activities typically involve buying
and selling bulk shipments of at least 8,000 tonnes of coal. There is no
size aggregation activity and entire ship loads can be sold to individual
customers.
South East Asian mining base
The fast growing group is increasingly deepening its value chain by acquiring mines and concessions. The first two mines are in Indonesia. A
new coal mine opens next month in Myanmar. Coal from here is targeted
to be increasingly sold to the nearby Indian market. A further internationalisation of operations is planned.
Sales and gross profits
2009
2010
2011
2012e
Sales (THBm)
Domestic
244
622
927
1,507
International
763
1,133
3,758
8,343
Total sales
1,007
1,755
4,685
9,850
12
35
89
181
Gross profits (THBm)
Domestic
International
62
203
698
1,986
Total gross profits
74
238
786
2,167
Gross margins (%)
Domestic
5.0
5.6
9.6
12.0
International
8.1
17.9
18.6
23.8
Total gross margins
7.3
13.5
16.8
22.0
Sources: CM-Equity, Energy Earth
Sourcing coal
Energy Earth’s first challenge is find sufficient coal supplies. The group
works with Indonesian partners and miners alliances. Survey teams and
geologists are employed to check potential reserves for mine acquisitions. Strong growth plans mean at least one new mine is acquired each
year. Management are currently exploring additional coal mining opportunities in both Colombia and the US. These are nevertheless underground mines and so have different risks compared to the group’s current surface open mines.
Own mines enhances margins
By acquiring mines the group gains stability of coal supplies as well as
higher profit margins. For the open-surface mines which are owned by
Energy Earth, Thai operational teams are sent to work with local mining
staff. Mining activities typically involve direct long-term sales contracts
to customers or traders. To date most sales have gone directly to China’s
main power station groups. Some 5% of shipments are directly to India.
Minimum orders are generally for 10,000 tonnes.
Sorting coal of Thai markets
In Thailand engineering activities include crushing and screening the coal
size and quality as well as monitoring productivity. Coal sold in Thailand
goes to a range of industrial customers which require different sizes and
quantities of coal. The group has significant experienced in processing
and quality control.
11 February 2013
12
Sales (000’ tonnes)
2008
2009
2010
2011
2012e
2013e
2014e
187.2
397.5
Sources: CM-Equity, Energy Earth
696.3
1,956.8
8,000
11,000
14,000
Outlook
Energy Earth expects annual sales growth of some 30% to 40%. With its
niche presence established in the two major markets of India and China
we believe this should be attainable. In 2012 the group supplied some 8
million tonnes of coal. This is expected to reach 11 million tonnes in 2013
for a growth rate of some 37%. The target is for 14 million tonnes in 2014.
At the current oil prices around $119 a barrel there is little incentive for
customers to switch from using coal for power generation.
A reliable partner for the Chinese customers
Although Chinese power groups also obtain Indonesian coal from other
suppliers, Energy Earth’s local contacts and knowledge gives a competitive advantage. The group works well with its customers giving quality
guarantees and paying any penalties due.
Thailand has seen solid demand growth for coal but Energy Earth plans
to expand even faster in international markets. China could take some
eight million tonnes of coal from the group this year. However, China’s
top five power station groups Datang, Huaneng, Guodian, Huadian and
China Power need significantly more coal than Energy Earth can supply.
They currently have some 200 new coal fired plant projects.
To control pollution though China plans to cap its coal consumption at
3.9 billion tonnes in 2015. Independent estimates nonetheless suggest
the figure may be at least 15% higher.
a) Coal types and grades
Coal can be categorised by the depth of its source below the surface or
its energy qualities. The main categories are lignite, sub-bituminous, bituminous and anthracite. (See Appendix 1 page 19).
Lignite or brown coal
Lignite or brown coal develops from peat but still has some plant remains
inside and its humidity rate is between 30% and 70%. It is a low quality
coal mostly used as a fuel in power stations. It can also have high levels
of sulphur and leaves a high ash content after burning. Lignite represents
17% of world coal reserves.
Sub-bituminous coal
Sub-bituminous coal ranges between lignite and bituminous coal (hard
black coal). It is soft with humidity between 10% and 20%. Sulphur contents are typically medium. It is also largely used as a fuel for power stations and in the chemical industry. Sub-bituminous coal accounts for 30%
of world coal reserves.
Bituminous coal:
i) steam coal
ii) metallurgical (coking) coal
Bituminous coal is harder containing the tar-like substance bitumen. Although bituminous coal is usually black it is sometimes dark brown with
bands of bright and dull material. Coal seams are classified according to
colour and brightness of bands. Humidity is usually between 2% and 7%
and its sulphur is generally low. Bituminous coal is divided into thermal
(steam coal) and metallurgical (coking coal). Thermal is used in power generation and cement manufacturing industries. Metallurgical coal
is use in the manufacturing of iron and steel. Some 52% of world coal
reserves are bituminous coal.
Anthracite
Anthracite is the highest quality coal with a carbon content of typically
between 92% and 98%. It has very low humidity and low sulphur content.
It does not emit hydrocarbon vapours when heated and burns with a blue
smokeless flame. Anthracite is also known as blue coal, hard coal or stone
coal. Less than 1% of the world’s coal reserves are anthracite.
11 February 2013
13
b) Trading
Thailand base
Energy Earth’s coal trading activities are based around 40 office employees in Thailand. These were Energy Earth group’s first activities. Longterm relationships with Indonesian mine owners and purchasing groups
have been developed. Trading has since been supplemented with increasingly own coal mines to source coal directly and to further improve
already good margins.
To date all coal supplies have been sourced from Indonesia. In 2012 the
group obtained four million tonnes of coal from its own mines with another four million tonnes bought from other mines and exported from Indonesia. In 2013 the group’s new mine in Myanmar is expected to supply
one million tonnes of coal rising to two million tonnes in 2014 and to four
million tonnes in 2015.
Sourcing helped through
social assistance
Coal is supplied directly to end markets where the customers are predominantly large power station groups based in China. Energy Earth
helps to secure its business with Indonesia through providing social
and economic assistance to Indonesian villagers. This includes help with
schools education and religious pilgrimages. Energy Earth also offers the
local Indonesians an equity share in a larger listed group. The promise of
quarterly dividends from Energy Earth adds to the attraction.
Some 5% of group sales have been to India, but this should increase following new contracts. Indonesian coal is also exported to Thailand where
it is sorted and graded for customers who are either power groups or
industrial companies, typically in the paper, textile and food industries.
Coal sorting
Coal sorting in Thailand uses machinery with crushers which then pass
the coal to hoppers of different sizes. Energy Earth operates two coal
separation plants and warehouses in Thailand. These sort coal to supply
the needs of the different local customer markets. Three sizes are 0 to
10 mm, 10 to 30 mm and 30 to 50 mm. Capacity is for sorting 60,000
tonnes a month or around 700,000 tonnes a year. The group plans to add
coal separation plants in Myanmar and Indonesia in the medium term.
World’s largest coal exporters (mt) 2011
Market
Steam coal
Coking coal
Total
Indonesia
309
0
309
Australia
144
140
284
Russia
110
14
124
USA
34
63
97
Colombia
75
0
75
Sources: World Coal Association, CM-Equity
c) Mining
Indonesian and Myanmar
mines
Energy Earth’s first owned mine is located at Sebamban and the second
mine at Batulicin both on the Indonesian island of Kalimantan. These initially had some eight million tonnes of coal reserves. A much larger coal
mine on the island is expected to be fully acquired shortly. This could
have some 40 million tonnes of coal reserves. Mining is expected to commence late next year after ground clearance is completed.
Energy Earth’s current third mine is located in Myanmar. This has an initial
concession period of five years, but can be extended for a further five
years. Mining is expected to commence in the next quarter of this year.
Coal reserves are not less than 40 million tonnes.
11 February 2013
14
Energy Earth’s mines
Location
Reserves
(mt)
Coal quality*
kcal/kg
Purchase
(date)
Concession
Mining date
started
South Kalimantan,
Indonesia
1.8mt measured, 2.1mt
indicated
5,500 – 5300
Nov 2011
Jan 2010 to
Jan 2015
Q2/12
South Kalimantan,
Indonesia
5.6mt measured
5,500 – 5300
Nov 2011
Jan 2010 to
Jan 2015
Q2/13
30-40 mt
5,500 – 5300
2013
Myanmar
not less than
40 mt
5,800 –
5600
Colombia
75
0
East Kalimantan, Indonesia
Q4/14
Mar 2010 to
Mar 2015**
Q2/13
75
Sources: Energy Earth, CM-Equity *air dried basis; ** extension possible for a further five years
After acquiring a mine the group needs to first clear the undergrowth.
The cutting down or burning forests is undertaken by other companies
as Energy Earth has no licence to remove trees. Energy Earth removes
top soils to the nearest location where there are no known coal deposits.
These top soils are typically some 20 metres deep.
As these open mines are located on remote isolated places infrastructure
needs to be built. Dirt roads are typically built but heavy rain can cause
problems. A range of mine equipment is needed including loaders for
scooping coal and loading trucks for transport to ports.
Mine targets
The group looks for small mines with coal reserves of less than 100 million tonnes. This is driven by the need to progressively give equity to
locals after five years. Exhausting a mine as soon as possible is therefore
the most profitable strategy. Energy Earth targets at least a 30% gross
margin on its mines over their projected lives which are typically under
ten years.
Mining production (mt)
2010
2011
2012
2013e
2014e
South Kalimantan, Indonesia
Location
-
-
2.00
-
-
South Kalimantan, Indonesia
-
-
-
2.50
3.00
2015e
2016e
0.10
-
East Kalimantan, Indonesia
-
-
-
-
1.00
5.00
5.00
Myanmar
-
-
-
1.00
2.00
4.00
5.00
2.00
3.50
6.00
9.10
10.00
Total
Equipment bottlenecks
Diggers or excavators remove the coal and place it into trucks which
transport it to mini or jetty stockpiles. Bottlenecks can occur in the truck
delivery from the mines. Crushing machines are operated at jetty stockpiles. Coal is then loaded onto barges and moved to ports for shipment
to end customers. The group’s main bottleneck is at barges and shipping
as Energy Earth currently leases or rents these. Energy Earth therefore
plans to buy more mining and related infrastructure including transport
barges, jetties, floating stockpiles and mobile vessels.
11 February 2013
15
d) Sales by area
Customers by location and
type
Most of Energy Earth’s customers are power plant groups in China. This
includes the big five utilities. Other major customers are private power
plants in China and India. Thai customers which account for 20% of group
sales include power plants and a range of other industries needing coal
for their industrial plants in the textile, paper and food industries. Future
sales may also include to the retail market.
Coal depot plans for Chinese
retail market
Energy Earth plans to build a coal supply depot in southern China near
Guangzhou. This will stock imported coal and sell to locals at a rate of
potentially 200,000 tonnes a month. Additional coal depot centres may
be developed elsewhere in China in the medium term to further access
smaller end customer markets.
Energy Earth in the medium term plans to acquire higher quality coal
mines to sell coal into other markets including Japan and Korea. These
markets though may be supplied from the US or Colombia. The group
also has sales contacts in Taiwan which can be developed in the medium
term.
Dollar contracts
All customers pay in US Dollars. Three month contracts typically cost 2%
to 3% more if in Thai Baht. However, we believe the Renmimbi may offer
the group a greater long term certainty for much of its business.
Many end customers experience seasonal demand, especially with the
Chinese winter. Coal stock building is done by Chinese, but in the long
term Energy Earth could also benefit from seasonal patterns. The group
is a small company in the global coal market and so does not impact the
total coal supply market nor influence coal prices.
e) Environmental issues
Environmental
responsibilities at mines
Prior to buying a mine an environment report is undertaken and discussions held with local authorities and villagers. Environmental responsibilities at mines include minimising dust in surrounding areas. Shading
nets are constructed as well as fences and water curtains. Plantation is
also used to minimise pollution. Soil is replaced in stages when parts of
mines become exhausted. This means there is no need for provisions to
replace soil.
Limiting ownership dilution
Mines containing typically 40 million tonnes of coal could have a mine
output of four million tonnes a year for 10 years. With the need to give
equity to locals after five years any potential liabilities are halved by year
ten. The group nonetheless seeks to exhaust mines much sooner than
ten years.
Myanmar in contrast has joint operating agreements for its coal mines.
World coal demand is growing sharply and could pass world oil demand
in the next five years. The need for cleaner power stations with fewer
emissions though is also growing. Most of the leading environmental legislation though relates to Europe. The US market has nonetheless seen a
collapse in local gas prices due to the availability shale gas. This has depressed coal prices and mines are being closed. Coal fired power stations
in the US have a poor outlook.
In contrast China and India are the main source of building new coal fired
power plants. Pollution levels recently became a major problem in China.
As the country continues to grow rapidly the demand for energy rises
accordingly. This suggests whilst environmental pressures will probably
increase, the demand for cleaner energy should also grow.
11 February 2013
16
new technologies of underground coal gasification or carbon capture
and storage suggest coal still has a bright future for a considerable period. the International energy agency forecasts china alone may account
for around 70% of the growth in world coal demand over the next five
years.
Methane energy
all hard coals contain methane. this can be hazardous, particularly in
underground mines. however as it generates energy when ignited it can,
if correctly used, provide additional benefits to coal mining.
to date world carbon capture and storage has stored some 32mt of carbon dioxide in either non-recoverable mines or in exhausted underground
oil and gas or salt facilities.
f) Currencies
Thai Baht accounts
the thai Baht has risen against the euro over the past five years by 15%
from 45.7 thai Baht to one euro to 39.9 thai Baht to one euro. although
this covers the period of greatest speculation over the euro’s future, the
thai Baht has remained relatively stable over the past three years. prospects for the currency appear favourable with the thai economy seeing
much stronger annual growth rates than the euro area or the eu as a
whole. the ImF expects thai gDp to grow by 6.0% in 2013 and 4.5% in
2014. this compares with ImF forecasts of less than 0.5% growth for the
eu this year and just 1.5% in 2014.
euro vs thai Baht exchange rate (5 years)
source: european central Bank
11 February 2013
17
V. Financials
Consolidated profit and loss account (THBm)
Year to 31 Dec
Sales
2009
2010
2011
2012e
2013e
2014e
1,006.9
1,755.2
4,685.1
9,850.0
13,494.5
17,003.1
74.3
166.9
110.2
37.0
26.0
% change
Cost of sales
(933.0)
(1,517.5)
(3,898.7)
(7,683.0)
(10,111.9)
(12,582.3)
% of sales
92.7
86.5
83.2
78.0
74.9
74.0
Gross profit
73.9
237.7
786.4
2,167.0
3,382.6
4,420.8
7.3
13.5
16.8
22.0
25.1
26.0
221.8
230.8
175.5
56.1
30.7
(28.1)
(69.4)
(89.6)
(141.2)
(177.5)
(216.6)
2.8
4.0
1.9
1.4
1.3
1.3
(12.2)
(46.7)
(64.9)
(80.0)
(88.0)
(96.6)
% of sales
% change
Selling expenses
% of sales
Administrative expenses
Management remuneration
(4.2)
(6.1)
(15.3)
(17.0)
(19.0)
(21.0)
Depreciation and amortisation
(4.8)
(9.5)
(23.8)
(130.0)
(192.0)
(417.0)
5.4
44.9
48.0
72.0
82.0
98.0
Other incomes
Other expenses
(2.2)
(7.4)
(14.2)
(14.9)
(13.9)
(13.5)
Operating profit
27.8
143.4
626.6
1,855.9
2,974.2
3,754.0
% of sales
2.8
% change
Finance costs
(16.8)
Pre-tax profit
11.0
% change
Income tax
(3.5)
% rate
8.2
13.4
18.8
22.0
22.1
415.6
336.9
196.2
60.3
26.2
(32.4)
(67.9)
(95.0)
(125.0)
(140.0)
111.1
558.7
1,760.9
2,849.2
3,614.0
910.0
403.0
215.2
61.8
26.8
(40.3)
(163.4)
(487.0)
(790.0)
(1,001.1)
31.7
36.3
29.2
27.7
27.7
27.7
Net income
7.5
70.8
395.3
1,273.9
2,059.2
2,612.9
% of sales
0.7
% change
4.0
8.4
12.9
15.3
15.4
842.9
458.5
222.3
61.6
26.9
(24.7)
0.0
0.0
0.0
0
Surplus on revaluation of land
0.0
Translation adjustments
0.0
0.0
0.4
0.0
0.0
0
Total comprehensive income
7.5
46.0
395.7
1,273.9
2,059.2
2,612.9
222.7
1,974.6
2,287.1
2,605.5
2,950.0
3,325.0
0.03
0.04
0.17
0.49
0.70
0.79
6.3
382.2
182.9
42.8
12.6
0.00
0.00
0.20
0.28
0.31
Number of shares (m)
EPS (THB)
% change
Dividend (THB)
0.00
Sources: CM-Equity
Dramatic past annual growth
Energy Earth has achieved rapid annual growth in both sales and profits.
Sales have grown from THB 1,007m in 2009 to THB 1,755m in 2010, THB
4,685m in 2011 to around THB 9,850m in 2012. Earnings have similarly
grown rapidly. Net profits were THB 7m in 2009, THB 46m in 2010, THB
396m in 2011 and we expect around THB 1,274m in 2012.
In the first nine months of 2012 revenues grew by 114% to THB 7,065m.
Gross margins have continued to improve due to a rising proportion of
own mine sourcing of coal. In 2011 gross margins were 16.8% but are expected to be around 22% for the whole of 2012. First nine months operating profits increased by 340% to THB 1,380m. Net profits grew by 318%
to THB 849m. Net profit margins rose from 8.1% to 12.0%.
Assumption strong coal
demand and solid prices
As world oil reserves diminish the price of oil should rise and with it the
price of coal. Underlying world annual coal demand should also grow in
the long term adding further support to coal prices. We have nonetheless
assumed a stable coal price for the next few years.
11 February 2013
18
We also assume stable currencies for the next few years. However, the
probability is the Renmimbi may rise against the Dollar and so provide
some further upside earnings potential for the group. We broadly assume
any weakness of the Dollar against the Thai Baht or other currencies will
be compensated by higher Dollar-term prices for coal.
Strong future sales and
earnings growth expected
For the next few years Energy Earth’s annual sales growth could be some
30% to 40% with it slowing thereafter to around 25% a year. Gross profit
margins could reach 25% in 2013, compared to 16.8% in 2011, helped by
increasing coal supplies from the groups Myanmar mine. Net profit margins are expected to rise from 8.4% in 2011 to around 15% this year.
Dividend policy
The company plans to pay quarterly dividends. The total year’s payment
should represent around 40% of annual earnings. This suggests on the
current share price the annual dividend yield for 2012 could be 2.5%.
Customers by location and
type
When Energy Earth was listed through a reverse take over it acquired tax
losses which also lowered the 2012 tax liability. However, lower standard
tax rates of 20% for 2013 mean using up the tax loss will not impact net
earnings. Indonesia charges an additional 10% mineral tax on coal produced. This rate depends on the grade of coal and government policies.
Generally the rate though has remained close to 10%. The value added
tax rate is 7%.
Thai accounting standards
Energy Earth produces its accounts under Thai accounting standards
(TAS). These have increasingly been revised in recent years to bring them
very closely into line with International Financial Reporting Standards.
Mining production (mt)
Year to 31 December
2009
2010
2011
2012e
2013e
2014e
Net profit
7.5
70.8
395.3
1,273.9
2,059.2
2,612.9
Depreciation
4.8
9.50
23.83
130.0
192.0
417.0
(225.2)
37.7
(1,407.2)
(3,109.0)
(1,764.8)
(1,690.3)
Change in working capital
Other
85.7
45.1
52.5
40.0
40.0
40.0
Cash flow
(127.2)
163.0
(935.6)
(1,665.1)
526.4
1,379.6
CFPS (THB)
(0.57)
0.08
(0.41)
(0.64)
0.18
0.41
Non-operating cash flow
117.6
(15.6)
24.8
75.2
109.7
185.0
Total cash flow
(9.6)
147.4
(910.8)
(1,589.9)
636.1
1,564.5
Net cash at start of year
(198.3)
(211.4)
(393.0)
(1,364.9)
(2,984.8)
(3,608.2)
Capital expenditure & other
3.5
290.1
61.1
30.0
750.0
770.0
Dividends (for previous
year)
0.0
39.0
0.0
0.0
509.6
823.7
Net cash at end of year
(211.4)
(393.0)
(1,364.9)
(2,984.8)
(3,608.2)
(3,637.3)
Surplus cash flow from
operations
(13.1)
(142.6)
(971.9)
(1,619.9)
(113.9)
794.5
Sources: CM-Equity
Customers by location and
type
Actual capital expenditures are supported by barter agreements
where Chinese machinery companies accept deferred coal shipments
in payment for equipment. This means the group’s potential to acquire new equipment is only limited by its ability to acquire new mines.
Moreover buying mines largely in exchange for new equity in Energy
Earth means the group again heavily limits its cash needs.
Majority family owned to
continue
The main family shareholders want to retain over 50% of the shares as
they believe this gives greater confidence to mine owners who receive
shares in Energy Earth in payment for their mines.
Energy Earth plans to issue a Warrant Series 4 after an extraordinary
meeting. These are expected to be priced at 8.13 Thai Baht with three
warrants necessary for one share.
11 February 2013
19
Consolidated balance sheet (THBm)
As at 31 December
2009
2010
2011
2012e
2013e
2014e
Current assets
Cash and cash equivalents
19.9
56.9
174.1
605.5
360.4
389.7
Trade accounts receivable
326.4
283.9
1,280.7
2,592.4
3,551.6
4,475.0
Inventories
113.4
189.3
195.2
1,140.8
1,552.9
1,946.6
Advance payments
0.0
127.9
389.9
1,439.7
1,952.5
2,440.1
Value added tax receivable
0.0
22.1
23.9
50.3
68.9
86.8
Other current assets
18.5
19.4
24.7
36.4
37.0
38.0
Total current assets
478.0
699.5
2088.5
5865.1
7523.1
9376.2
Bank and other financial
debt
(298.2)
(561.8)
(1,914.0)
(4,000.3)
(4,406.5)
(4,511.0)
Trade accounts payable
(76.0)
(300.2)
(128.2)
(302.6)
(398.2)
(495.5)
Income tax payable
(23.4)
(38.1)
(113.6)
(338.7)
(549.4)
(696.2)
0.0
(18.4)
(51.6)
(101.6)
(143.8)
(178.9)
Current liabilities
Accrued expenses
Other current liabilities
(48.4)
(7.8)
(3.5)
(5.2)
(15.0)
(25.0)
Total current liabilities
(446.0)
(926.3)
(2,210.9)
(4,748.3)
(5,512.9)
(5,906.6)
Deposits pledged as collateral
75.5
178.5
426.1
450.0
480.0
528.0
Property, plant and equipment
32.3
417.6
266.4
311.6
342.8
377.0
Assets not used operations
123.3
0.0
179.8
179.8
179.8
179.8
Long-term assets
Mining property rights
0.0
0.0
1,104.1
938.5
1,439.3
1,713.0
Goodwill
0.0
36.5
36.5
33.0
28.0
25.0
Other non-current assets
Total long-term assets
1.7
0.4
1.0
1.0
2.0
2.0
232.9
633.0
2,014.0
1,913.9
2,471.9
2,824.9
(8.6)
(66.6)
(51.1)
(40.0)
(42.0)
(44.0)
0.0
0.0
(1.5)
(2.0)
(4.0)
(5.0)
(8.6)
(66.6)
(52.7)
(42.0)
(46.0)
(49.0)
256.4
339.5
1,839.0
2,988.7
4,436.1
6,245.5
Long-term liabilities
Bank and other financial
debt
Pensions
Total non-current liabilities
Total net worth
Represented by:
Ordinary capital
160.0
200.0
531.5
2,605.5
2,950.0
3,325.0
Capital reserves
0.0
39.0
811.3
100.8
186.0
316.0
Distributable reserves
0.0
36.9
431.1
310.3
1,245.8
2,513.5
Other components of
shareholders' equity
96.4
63.6
63.9
(29.3)
52.3
87.9
Shareholders’ equity
256.4
339.5
1,837.9
2,987.2
4,434.1
6,242.5
0.0
0.0
1.1
1.5
2.0
3.0
256.4
339.5
1,839.0
2,988.7
4,436.1
6,245.5
Minorities
Total net worth
Sources: CM-Equity
Inventories are accounted for on a first in–first out basis. The group
does not take risks or speculates on coal prices. The group has few
bad debts and pension provisions are very small. International customers pay through letters of credit and in Thailand the group exercises tight credit controls.
11 February 2013
20
Appendix I – World coal market
Coal is a combustible rock whose qualities depend on the original
type of vegetation, its depth, temperature, pressure and time taken to form coal deposits. In 2001 coal accounted for 25% of world
energy consumption. By 2011 coal was the second most important
energy source and accounted for 30% of world energy consumption.
Past growth in coal demand has been led by China and India. China
sources over 70% of its energy needs from coal and India over 50%
of its total.
Energy consumption by fuel 2011 (mt of oil equivalent)
Oil
Coal
Natural
gas
Hydroelectricic
Nuclear
Renewables
Total
461.8
1,839.4
117.6
157.0
19.5
17.7
2,613.2
17.7
70.4
4.5
6.0
0.7
0.7
100.0
833.6
501.9
626
74.3
188.2
45.3
2,269.3
36.7
22.1
27.6
3.3
8.3
2.0
100.0
Russia
136
90.9
382.1
37.3
39.2
0.1
685.6
% of total
19.8
13.3
55.7
5.4
5.7
0.0
100.0
India
162.3
295.6
55
29.8
7.3
9.2
559.2
% of total
29.0
52.9
9.8
5.3
1.3
1.6
100.0
4,059.1
3,724.3
2,905.6
791.5
599.3
194.8
12,274.6
33.1
30.3
23.7
6.4
4.9
1.6
100.0
China
% of total
US
% of total
World
% of total
Source: BP Statistical Review June 2012
a) Coal reserves
Proven reserves are derived from geological measurements, samples, production data and some estimates. Reserves are included only when they
could be mined technologically and economically. Reserves allow for losses during mining.
There are some 861 billion tons of proven coal reserves in the world with
47% hard coal. The US, Russia and China account for 60% of the world’s
total.
World proven coal reserves 2011 (mt)
Hard coal
% of world
Sub-bituminous /
lignite
% of
world
Total
US
108,501
26.8
128,794
31.8
237,295
Russia
49,088
12.1
107,922
26.7
157,010
China
62,200
15.4
52,300
12.9
114,500
Australia
37,100
9.2
39,300
9.7
76,400
India
56,100
13.9
4,500
1.1
60,600
Germany
99
0.0
40,600
10.0
40,699
15,351
3.8
18,522
4.6
33,873
Kazakhstan
21,500
5.3
12,100
3.0
33,600
South Africa
30,156
7.5
-
-
30,156
Other
24,667
6.1
52,138
12.9
76,805
1,520
0.4
4,009
1.0
5,529
404,762
100.0
456,176
100.0
860,938
Ukraine
of which Indonesia
World total
Source: BP Statistical Review June 2012
b) Coal demand
China consumes almost half of the world’s coal production. The US is second at over 13% followed by India at almost 8%. Coal demand substitution is dependent on a range of factors including relative energy costs,
transportation and environmental issues. The price of coal depends on its
location and quality.
11 February 2013
21
coal consumption by country (mt oil equivalent)
2011
% of total in
2011
% change (2001-2011)
1839.4
49.4
155.2
us
501.9
13.5
-9.1
India
295.6
7.9
103.6
117.7
3.2
14.3
china
Japan
south africa
92.9
2.5
26.6
Russia
90.9
2.4
-11.2
south Korea
79.4
2.1
73.7
germany
77.6
2.1
-8.7
poland
59.8
1.6
3.1
australia
49.8
1.3
3.3
other
519.3
14.0
16.1
44
1.2
161.9
3724.3
100.0
56.4
of which Indonesia
World
source: Bp statistical Review June 2012
c) Coal production
china mines nearly half of the word’s annual coal production. the us is the
second largest producer at 14% followed by australia at almost 6%. since
2001 coal production has grown by over 60% but some of the fastest
growth has been in Indonesia, up by over 250%. poland has seen a major
decline, down 21% on a decade.
coal production by country (million tons oil equivalent)
china
2011
% of total in
2011
% change (2001-2011)
1,956.0
49.5
141.6
us
556.8
14.1
-5.7
australia
230.8
5.8
28.1
India
222.4
5.6
66.5
Indonesia
199.8
5.1
251.1
Russia
157.3
4.0
28.3
south africa
143.8
3.6
14.0
Kazakhstan
58.8
1.5
44.5
poland
56.6
1.4
-21.1
columbia
55.8
1.4
95.8
other
World total
World
317.4
8.0
5.8
3,955.5
100.0
60.8
3724.3
100.0
56.4
thermal coal monthly price, australia in us$ per metric ton
source: Index mundi
11 February 2013
22
Appendix II – Listed coal companies
Three comparable listed Thai
companies
Banpu mines thermal and coking coal in Thailand, Laos, Indonesia, China, Australia and Mongolia. It also has coal-fired power generation. Lanna
Resources focuses on lignite and granite production and distribution. Its
mines are mainly located in Indonesia. Asia Green Energy produces and
markets mainly sub-bituminous coal and mostly operates in Thailand and
Indonesia.
23 Asian companies of which
10 are Chinese
China Shenhua Energy is one of China’s largest coal suppliers focused on
production, logistics and power generation. China Coal Energy is focused
on the coal industry, mainly production and trading and mining equipment. Shanxi LuAn Environmental Energy Development mines, processes and trades in coal. Yanzhou Coal Mining mainly focuses on mining,
processing and sale. Shanxi Xishan Coal and Electricity Power mines and
processes coal. Jizhong Energy Resources mines and markets coal products and produces cement. Guizhou Panjiang Refined Coal focuses on
mining, processing and selling coal and electricity generation. Shanxi Lanhua Sci-Tech Venture manufactures and sells coal and chemical fertilisers.
Pingdingshan Tianan Coal Mining mines, processes and sells coal mainly
in China. Gansu Jingyuan Coal Industry & Electricity Power explores and
produces coal.
Three companies listed in
Hong Kong
Mongolian Mining mines and produces coking coal in Mongolia. Winsway
Coking Coal Holdings is a coal trader selling in China SouthGobi Resources is a mining and exploration company in Mongolia, selling to China.
Five Indonesian listed
companies
Adaro Energy focuses on coal mining, trading and services. Bukit Asam
is a coal exploration and mining group. It is also in refining and processing, logistics and trading. Bayan Resources mines thermal coal from open
mines. Berau Coal mines thermal coal from mines in Indonesia. Indika Energy focuses mainly on coal production, engineering and power generation.
One each in India, the
Philippines and Singapore
Coal India operates in 81 mining areas in India, exploring, mining and processing coal. Semirara Mining of the Philippines explores and mines. Geo
Energy Resources of Singapore mines coal in Indonesia.
Nine US-listed coal
companies
Consol Energy produces coal and gas in North America. Peabody Energy
operates coal mines in the US and Australia. Alliance Holdings mines and
produces coal from ten US mines. Walter Energy mines and produces
coal and natural gas in the US, Canada and the United Kingdom. Natural
Resource Partners operates three coal mines in the US. Alpha Natural
Resources mines, processes and sells coal mined in the US. Arch Coal is
operates 46 mines in the US. Cloud Peak Energy mines coal from three
US mines. Rhino Resource Partners operates 13 mines in the US mostly
for utilities.
Three Australian-listed
companies
Whitehaven Coal develops and operates coal mines in Australia. New
Hope is focused on exploration, development, mining and coal processing
in Australia. Yancoal Australia develops and operates seven coal mines in
Australia.
Two Polish-listed companies
Czech Republic and South
Africa
Jastrzebska Spolka Weglowa mines coal as well as natural gas. Lubelski
Wegiel Bogdanka mines and produces hard coal in Poland for domestic
utilities.
New World Resources mines coal in the Czech Republic. Exxaro Resources is the second largest coal producer in South Africa.
11 February 2013
23
appendix III – thai stock market
there are 601 companies listed on the thai stock market. of these 518 are
listed on the set main board and 81 companies on the secondary board
the market for alternative Investment (maI).
the main composite index is the set index which includes all listed shares.
the set 50 index covers the 50 largest companies and the set 100 index
covers the 100 largest. at the end of 2012 the total market capitalisation
of the set was thB11,831bn (€293bn).
MAI market segment
the maI market for alternative Investment covers small and medium-sized
companies. the maI index includes 81 companies with a total market capitalisation of thB 133bn (€3.3bn) at the end of 2012. energy earth is the
largest company and accounts for some 16% of the index. the next largest
companies are universal absorbents & chemicals and three sixty Five
each accounting for around 4% of the index.
Listing requirements
the securities and exchange commission of thailand regulates companies. Listed companies on the main set segment have to have at least 150
shareholders. company auditors must be approved by the securities and
exchange commission of thailand.
minimum disclosure requirements for listed companies include publishing quarterly and annual reports. these must be submitted in thai and in
english. audited annual financial statements must be published within 90
days or within 60 days if there is no fourth quarter statement. Reviewed
quarterly financial statements must be submitted within 45 days of the
end of each quarter. complete annual reports have to be submitted within
110 days of the year end.
Thai accounting
standards
thailand has its own accounting standard (tas). however, over the past
decade a convergence between tas and IFRs has been sought with tas
being revised several times. Further revisions are expected as part of a
program to update tas with IFRs.
companies listed after January 2008 on the maI segment now pay a tax
rate of 20%. those companies listed on the main set segment pay a 25%
tax rate.
set Index
source: Bloomberg
maI Index
source: Bloomberg
11 February 2013
24
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11 February 2013
25
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Previous Research
Date
11 February 2013
(Initial Coverage)
Recommendation
Investment
Target Price
Recommendation
(Key)
501.9
13.5
-9.1
€0.275 (THB11.0)
BUY
1,2,4,9,11
Specific disclosures according to Section. 34b para 1 no. 1 German Securities Trading Act and Ordinance on the Analysis of Financial Instruments.
Section 34b of the German Securities Trading Act in combination with the Ordinance on the Analysis of
Financial Instruments requires a company preparing a securities analysis to point out potential conflicts
of interest with respect to the analysed company that is the subject of the analysis. A conflict of interest
is presumed to exist, in particular, if a company preparing a securities analysis
»»
holds a more than 5% interest in the capital stock of the analysed company that is the subject
of the analysis,
»»
has been a member of a syndicate that has underwritten the analysed company’s securities in
the previous 12 months,
»»
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designated sponsorship contract,
»»
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months for which a compensation has been or will be paid,
»»
is party to an agreement with the analysed company that is the subject of the analysis relating
to the production of the recommendation,
»»
or any of its affiliates are regularly trading securities issued by the analysed company or securities based on these issues,
»»
or the analyst covering the issue has other significant financial interests with respect to the analysed company that is the subject of this analysis, for example holding a seat on the company's
boards.
Key 1: The analysed company actively provided information material for preparation of this publication.
Key 2: This publication has been customized to the analysed company and has been modified afterwards before publication.
Key 3a:The analysed company owns more than 5% of the capital stock of CM-Equity and/or a company
affiliated with CM-Equity.
Key 3b:CM-Equity and/or a company affiliated with it and/or the analyst having prepared this publication owns more than 5% of the capital stock of the analysed company.
Key 4: CM-Equity and/or a company affiliated with it serves as a liquidity provider for the analysed
company’s shares on the basis of an existing market maker or liquidity provider contract.
Key 5: CM-Equity has acted as Lead Manager or Co-Lead Manager in an offering of shares of the issuer
and has underwritten shares of the issuer within twelve months preceding publication.
Key 6: CM-Equity and/or a company affiliated with it and/or the author of this publication acquired
11 February 2013
26
shares of the analysed company free of charge or for a consideration below the stated target price and
before the shares’ public offering.
Key 7: CM-Equity and/or a company affiliated with it was subject to an agreement on services in
connection with investment banking transactions with the analysed company in the last 12 months or
within the same period received consideration on basis of such an agreement.
Key 8: CM-Equity and/or a company affiliated with it receives commission earnings arising from commercial activities from the analysed company.
Key 9:CM-Equity and/or a company affiliated with it is regularly trading securities issued by the analysed company or one of its affiliates.
Key 10:A member of the managing board of CM-Equity and/or the author of this publication is member
of the supervisory board of the analysed company.
Key 11: This publication is a contract work for remuneration, initiated and paid by the analysed company.
Key 12: This publication is a contract work for remuneration, initiated and paid by shareholders or
backers of the analysed company.
Investment Recommendations (12 months investment period)
Buy: We expect a stock to rise by at least 20% and outperform the 10%.
Hold: We expect a stock to move within 10% of the benchmark.
Sell: We expect a stock to fall by at least 20% and underperform the The benchmark for the stocks analysed in this publication is the DAX.
benchmark by over
benchmark.
Statements according to Section 34b of the German Securities Trading Act and Ordinance on the Analysis of Financial Instruments
Sources of information
The information contained in this publication is derived from carefully selected public sources we believe
are reasonable, particularly from providers of financial data, the issuers’ own publications as well as other
public media.
Principles and methods of valuation
For the preparation of this publication CM-Equity has used methods of fundamental share analysis as well
as quantitative/statistical methods and models (inter alia historical valuation approaches, asset-based
evaluation methods or sum-of-the-parts methods, discount models or the Economic profit approach,
multiple-based models or peer-group comparisons). Valuation models are dependent on macroeconomic factors, such as exchange rates, interest rates, row materials, and on assumptions about the economy.
Furthermore, market sentiment and political developments affect the valuation of companies.
The valuation is also based on expectations that might change rapidly and without notice, depending
on developments specific to individual industries. Consequently, our recommendations and price targets
derived from the models might change accordingly. The investment ratings related to a 12-month period
are subject to market conditions and can only represent a snapshot. The ratings might in fact be achieved
more quickly or slowly than expected, or need to be revised upward or downward.
Analyst Declaration
The author’s remuneration has not been, and will not be connected with the investment recommendations or views expressed in this publication, neither directly nor indirectly.
Organisational provisions to avoid conflicts of interests
In order to prevent conflicts of interests CM-Equity has separated business units with access to confidential information (confidential units) from its research units by functional and/or special separation or by
setting up access authorisation for data. In particular, Investment banking units and units of other financial advisory as well as capital market activities, are segregated by physical and non-physical boundaries
from the research department of CM-Equity. This segregation of CM-Equity’s operative units as well as
the transfer of the – often stock-exchange price relevant - information is controlled by a unit independent from trade-, corporate- and transaction units (compliance). This guarantees that the stock-exchange
price relevant information is not being misused or being transferred illegally to units with access to publicly available information only.
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