fanoflynch avatar
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$Geo Energy Res(RE4.SI)

1 year ago, Geo released Q3 earnings, so I am hoping today is the day. Here are some facts that although seem obvious, require reminding because our emotions tend to cloud our judgement.

- The share price movement after earnings does not represent the quality of the earnings report. The quality is for you as an investor to decide. Do you like the story?

- On the same note, don't try to predict whether the price will go up or down after earnings release, it is completely unpredictable, even if 10/10 things are going right, it can still go down.

- There will always be some justification for the price movement after earnings, but it's all about perspective. Assuming the scenario whereby production is mediocre (1.5-2m), but profit is high as a result of coal prices:

--> If the price goes up, people will say it's because of record profit
--> On the other hand, if the price goes down, people will say it is because production level was disappointing

It is exactly the same scenario, but different interpretation.

What truly matters:

I think everyone invests in companies because we want a share of the money they make, so we all want them to make MONEY, NOT coal. Coal 可以吃的吗? Our shares in Geo are quoted in SGD, not in metric tonnes. It's more favourable if they make a record profit without meeting their production target, than to exceed their production target but make less profit. The production target was given in the first place to allow us to make a rough estimation of their FY2017 profit based on the fluctuating coal prices. But if they mine 8m tonnes for the entire year and their profit is more than last year's, then all the better. Less effort, more results, good for the weary miners, good for us. I personally think they will do better than 2.2m tonnes, and I have my reasons for that, but I don't really care because my eye is on the money.

Given their current grossly undervalued P/E ratio, I don't even think there is any growth expectation priced into this thing. It is priced as if coal prices are nose-diving and all the miners went on strike. In about 2-3 years time, at this coal price and stock price, the P/E ratio is going to be 2. The company will generate enough money to buy itself up in 2 years. So, if the stock price drops today on good results, we all know what we're buying for ourselves this Christmas :)

On a side note, I remember in April the stock price fell from 0.34 to 0.25, rationalized by coal prices "plunging" from $44 to $36 per ton. Now that the coal prices are at record highs, the stock price hasn't recovered, and people blame "low production". There will always be people attempting to rationalize the price of a stock and there will always be something to blame but it's a futile attempt. Here are 5 reasons why Geo today is better than Geo 8 months ago:

1. They have settled the MTN debt issue
2. They are producing more coal tonnage than last year
3. The coal price is higher today
4. They have a new mine acquisition completed with an offtake agreement 99% guaranteed
5. The company is selling cheaper than it was 8 months ago - so how do you rationalize this?

Simplistically, in the long-run, earnings are DIRECTLY correlated to the value of a stock. It is that easy, doesn't take a genius to know that. The key is to find out what drives the earnings, and in Geo it is very easy to see. Ultimately, more money earned is more money in the bank account. You are a shareholder, you own a share of the earnings, and it will become yours eventually (dividends, share buybacks, company buyout, net equity increase), so just be patient, give them a few years, keep your eye on their profit, and don't hope for a stock price spike up after the report. It is clear that the company is doing well, we don't need the stock price movement to validate our analysis. Thanks for reading.

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21 people like this.
Newbiewinvest :

Result is out! Interm Dividend

Newbiewinvest :

Reply to @duckie : Hahahaha. Sure, can wait for my geo to hit my target Price?

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youying :

Based on sgx filing, the result will be out on 17th Nov

youying :

Reply to @Newbiewinvest : Anyway golden energy just announced...i may be wrong or phillips securities may be wrong

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Newbiewinvest :

Results unlikely to be today. Didn't see it yet.

cherrykoh :

my view is that this stock is controlled by bbs. Can go up high high in one day and then drop bit by bit to suck more in again. Repeat the step a few times and the retail investors get suck dry dry lol. (vested n all the best)

Newbiewinvest :

May the force (good favour) be with us! With u!

Omgomgomg :

Thanks. Very nice especially these -
"I think everyone invests in companies because we want a share of the money they make, so we all want them to make MONEY, NOT coal. Coal 可以吃的吗? Our shares in Geo are quoted in SGD, not in metric tonnes. "

pillow :

very nice sharing

gagnant76 :

Wonder when they will announce their quarter report

fanoflynch :

Reply to @gagnant76 : I think we can call them to ask actually

theintelligentinvestor :

Good points!

In general, there will be businesses that are financially healthy, lead by solid management team, growing at a moderate rate, but somehow totally ignore by the market for years. Sometimes, the market will eventually recognize the value and the price will play catch up. But there could be cases that the business deteriorated before it gets recognized.

While I agree to buy and hold on to undervalued stocks, it still needs the attention to the current business prospect. Good luck with Geo!

fanoflynch :

Reply to @theintelligentinvestor : Thanks! Yes, which is why quarterly reports are exciting - so we can keep an eye on the current business situation. I don't think we should hide the stock and come back 3 years later to see what has happened.

I am also aware that the cyclical downturn may happen before the stock price appreciates to a satisfactory level. That is probably one of the biggest risks of this stock at this point. So far so good. But yes, always on the watch.

sysy :

thanks for sharing ur thought!!!
hope we all huat together for those vested :)

fanoflynch :

Reply to @sysy : Good luck to you too

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$Geo Energy Res(RE4.SI)

Just FYI for those who monitor short interest closely enough:
My remaining 50,000 shares just got returned last week.

My shares literally got loaned out a couple of months after I initiated my position back in October 2016.
Since the start of 2017, varying amounts of between 50,000 to 250,000 shares were loaned out at any 1 time, and returned as well.
The shares were loaned out in 50,000 blocks at any 1 time (I get a mailer each time from SGX)
and the holding period was approximately 2 - 4 weeks or so

All my shares were returned except this 50,000 shares, since ard June.
For the past 4 months, this 50,000 shares were loaned out, but this was finally returned last week. (damn, no more fees to collect after this month)

So for the 1st time in 2017, I currently have 0 shares of Geo Energy loaned out.

Read what you will into these activities, personally, I have given up reading into it, I only know the fees will be credited to me every month.
Initially, I tried reading into the movements of the guys shorting it (presumably), but quickly gave up when I realized it's a fruitless endeavor.

On a whole, they have lost money... I'd say 4 out of 5 times the shares were loaned out. Or maybe 3 out of 5.
This recent 50,000 returned, would've netted the borrower a lot more losses considering the share price rose + the borrowing costs for me and for SGX, since June 2017.

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Target Price

Initiated a new position 2 weeks ago on $Geo Energy Res(RE4.SI). I think it is grossly undervalued. This is a turnaround play so I am a little more cautious than usual. Investment merits are:

1. TBJ mine to drive its next leg of growth
2. Coal prices have been on an uptrend
3. Good dividend ratio
4. undervalued on P/E basis compared to its peers
5. Mine reserves net of cash exceeds market cap when a DCF is done.

Full write up in my blog article.

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Vested! Dyodd
Waiting for coming results

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Target Price

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