Resources Gbl - Stock Analyst Research

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Publication Date11 Mar 2024

*At the time of publication

Resources Global Development - Riding on Indonesia’s energy demand

  • RGD engages in coal trading and shipping of hard commodities in Indonesia. It owns a fleet of 22 Indonesian-flagged vessels to operate trans-shipment services or chartered out to third parties. FY23 gross profit split was 90.5%/9.3% for shipping/trading. Trading volume dwindled due to the depletion of output from the coal mines.
  • The acquisition of Batubara Development Pte Ltd in Jan 24 for S$10mn (a mix of equity and debt) gives it an indirect 18.7% stake in four greenfield coal mines in Central Kalimantan. Production is expected to begin in late 2024. RGD is issuing 10mn new shares to fund the acquisition.
  • Of its net cash of S$24mn at end 2023, S$13mn has been pledged as cash collateral to secure loans for fleet expansion. It plans to add 33% fleet capacity in 2024.
  • Net profit grew at a 4Y CAGR of 102.8%—though it fell 36% YoY in FY23 due to reduced trading volume—on the back of higher shipping earnings. FY23 ROE was 21.2% in spite of net cash. The operation generated strong operating cash flow of S$0.51/share in FY23.

 

Background

Resources Global Development (RGD) engages in coal trading and shipping of hard commodities from Indonesia. It acquired an indirect 18.7% stake in four greenfield coal mines in Central Kalimantan, which are expected to start producing by the end of 2024. RGD’s attributable 2P reserve is about 30mn tons.

 

Highlights

Revenue from shipping of thermal coal rose at 4Y CAGR of 51.9%, outpacing the 17.4% increase in fleet capacity. The higher revenue growth is a function of higher freight rates, faster turnaround and operating leverage. Shipping gross margin reached a record 53.7% in FY23. RGD also takes on other commodities such as nickel, bauxite, sand and granite.

 

33% fleet expansion in FY24. Fleet capacity is expected to rise to 300,000 dwt by the end of 2024. Demand growth is underpinned by increased output in the base metal and mining industries. Indonesia recorded US$47.3bn in foreign direct investments in 2023 (+13.7% YoY). Base metal and mining accounted for 24.9% and 9.9%, respectively.

 

Trading volume is likely to remain subdued. The mines from which RGD procures its coal supply have been depleted, and RGD needs to look for alternative sources. Trading commands a lower gross margin of 5.8% in FY23, as these are mainly back-to-back contracts.

 

Coal mining to be a new income stream. The coal mines will add a new income stream at the associate level when production begins in FY25. The stakes in these mines are held through 31.2%-owned JSE-listed PT Singaraja Putra Tbk (PT SINI).

 

Net profit grew at 4Y CAGR of 102.8%. Since listing in Jan 20, net profit has grown at 4Q CAGR of 102.8%, led by higher shipping income. The first decline in FY23 of -36% YoY was due to dwindling volume for coal trading.  In spite of net cash of S$24mn on its balance sheet, ROE was 21.2% in FY23. The operations generate an operating cash flow of S$0.51/share.

 

Indonesia’s domestic coal demand will rise by an average of 24% in the next two years. Coal prices have been on a decline since the start of 2023, with a heavy stockpile in Europe due to a lower coal burn. The International Energy Agency (IEA) forecasts Indonesia’s coal-fired generation to increase by 5% for 2024-2026 and domestic demand to reach 284mn by 2026, from less than 200mn in 2024.

Background

 

Coal Trading

 

RGD started trading in coal in April 2017. It procures thermal coal from coal mines in South Kalimantan and sells it mainly to coal traders on back-to-back contracts. The customers are mainly coal traders, who procure coal for domestic end-users operating in various industries. The average quality of coal traded is GAR 4,200 kcal/kg.

 

Revenue fell 41% in FY23 due to a steep reduction in trading due to the depletion of supply at the coal mines (Figure 1).

About the author

Peggy Mak
Research Manager
PSR

Peggy has been a sell-side equity analyst for 22 years and a fund manager for 15 years.

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