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KGI recommends shareholders take the better offer from GEAR

Felicia Tan
·2-min read

Of the various offers from GEAR, the analyst says he prefers the all-cash option. Here's why.

Golden Energy and Resources’ (GEAR) AUE shareholders had “better take the second chance” to realise their profits, says KGI Research analyst Chen Guangzhi.

Chen’s report on March 20 comes after GEAR increased its privatisation offer on March 18.

To Chen, shareholders should take the revised offer as he sees that the outlook for coal will not be as good as it was in 2022.

“Besides the Russia-Ukraine military conflict which is a non-recurring factor, China’s recovery is gloomy. Coal like most hard commodities is cyclical. China’s demand plays a decisive role in its pricing,” Chen writes.

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He adds that coal prices are expected to revert to its downward trajectory moving forward, adding that coal prices had already peaked in the middle of 2022. Chan also pointed out that the cycle of coal lags China’s credit cycle by 12 to 15 months and that the country’s credit stimulus peaked in 3Q2022 already.

In addition, Chan noted that GEAR’s all-cash offer price of 97.3 cents per share is above GEAR’s highest price since its reverse takeover in 2015.

Compared to the other recent price reversions, GEAR’s 15% increase is also one of the highest. “Current shareholders who may or may not take the previous placements (67 cents and 30.5 cents) will not be subject to losses,” says Chan.

Finally, the analyst notes that the coal sector is “out of favour” in the long term especially when environmental, social and governance (ESG) investments are increasingly popular and better perceived by institutions.

“Fewer investors lead to lower liquidities, and shareholders will be more difficult to cash out [if shareholders do not accept GEAR’s offer,” writes Chan.

Of the various offers from GEAR, the analyst says he prefers the all-cash option as it is better for investors to keep cash “from a prudent perspective” amid the current macro environment.

The all-cash option also gives shareholders higher returns compared to the other option of GEMS shares and cash, which will expose them to liquidity and foreign exchange (forex) risks, he adds.

As at 11.33am, shares in GEAR are trading 1 cent higher or 1.06% up at 95 cents.

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