Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Yesterday, Indonesia's second largest coal mining business <a href="https://www.smartkarma.com/entities/adaro-energy-tbk-pt" target="_blank" data-smartkarma-citation="entities:6061:1" rel="noopener">Adaro Energy (ADRO IJ)</a> announced a buyback. This follows another buyback which ended in December 2022.</li>
<li>The Sep21-Dec22 buyback bought back 1bn shares, but did not spend all the money allocated to the buyback. This new one might buy back a similar quantity.</li>
<li>Looking at Real World Float is the right frame of reference. And the stock was at a recent low vs a Peer Basket. </li>
</ul>


Yesterday, Indonesia's second largest coal mining business Adaro Energy (ADRO IJ) announced a buyback. This follows another buyback which ended in December 2022.
The Sep21-Dec22 buyback bought back 1bn shares, but did not spend all the money allocated to the buyback. This new one might buy back a similar quantity.
Looking at Real World Float is the right frame of reference. And the stock was at a recent low vs a Peer Basket. 


Adaro Energy (ADRO IJ) Buyback - A Decent Chunk of 1 Year ADV

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>Float and capping changes will require passive trackers to sell <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA)</a> and <a href="https://www.smartkarma.com/entities/adaro-energy-tbk-pt" target="_blank" data-smartkarma-citation="entities:6061:1" rel="noopener">Adaro Energy (ADRO)</a> while buying <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia (BBRI)</a> and <a href="https://www.smartkarma.com/entities/goto-gojek-tokopedia-tbk-pt" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">GoTo Gojek Tokopedia (GOTO)</a>. </li>
<li>There will be passive trading to other stocks too, though the impact and flow is not material on most of the stocks.</li>
<li>Passive trackers will trade at the close on 31 October, so there are only 3 days to implementation of the changes.</li>
</ul>


Float and capping changes will require passive trackers to sell Bank Central Asia (BBCA) and Adaro Energy (ADRO) while buying Bank Rakyat Indonesia (BBRI) and GoTo Gojek Tokopedia (GOTO). 
There will be passive trading to other stocks too, though the impact and flow is not material on most of the stocks.
Passive trackers will trade at the close on 31 October, so there are only 3 days to implementation of the changes.


IDX30/​​LQ45/IDX80 Index Rebalance: Float & Capping Changes on Tuesday

David Blennerhassett

<ul>
<li>Fund manager <a href="https://www.smartkarma.com/entities/saratoga-investama-sedaya-tbk-pt" target="_blank" data-smartkarma-citation="entities:13714:1" rel="noopener">Saratoga Investama Sedaya (SRTG IJ)</a> is up 107% yoy, buoyed by its investment holdings in <a href="https://www.smartkarma.com/entities/merdeka-copper-gold-tbk-pt" target="_blank" data-smartkarma-citation="entities:28447:1" rel="noopener">Merdeka Copper Gold (MDKA IJ)</a> and <a href="https://www.smartkarma.com/entities/adaro-energy-tbk-pt" target="_blank" data-smartkarma-citation="entities:6061:1" rel="noopener">Adaro Energy (ADRO IJ)</a>.</li>
<li>The discount to NAV is ~31% against a one-year average of 37%.</li>
<li>Potential large divestments, such as its holding in <a href="https://www.smartkarma.com/entities/tower-bersama-infrastructure" target="_blank" data-smartkarma-citation="entities:3537:1" rel="noopener">Tower Bersama Infrastructure (TBIG IJ)</a>, could causer investors to substantially narrow the NAV discount. </li>
</ul>


Fund manager Saratoga Investama Sedaya (SRTG IJ) is up 107% yoy, buoyed by its investment holdings in Merdeka Copper Gold (MDKA IJ) and Adaro Energy (ADRO IJ).
The discount to NAV is ~31% against a one-year average of 37%.
Potential large divestments, such as its holding in Tower Bersama Infrastructure (TBIG IJ), could causer investors to substantially narrow the NAV discount. 


Unlocking Saratoga Investama (SRTG IJ)'s Holdco

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<ul>
<li>In our October 2021 insight, we correctly anticipated a catch-up trade in Indonesian coal names: GEO is up 66.45%, Adaro is up 102% and ITMG is up 37.4%.</li>
<li>Coal is the new tobacco as coal stays stronger for longer due to limited capacity expansion. At spot prices, FY22 div yield is 48% for Adaro and 65% for ITMG.</li>
<li>Shares have re-rated but not as fast as improvement in profits, given historical payout ratios dividend yields in 2022 could be astronomically high capping downside risks.</li>
</ul>


In our October 2021 insight, we correctly anticipated a catch-up trade in Indonesian coal names: GEO is up 66.45%, Adaro is up 102% and ITMG is up 37.4%.
Coal is the new tobacco as coal stays stronger for longer due to limited capacity expansion. At spot prices, FY22 div yield is 48% for Adaro and 65% for ITMG.
Shares have re-rated but not as fast as improvement in profits, given historical payout ratios dividend yields in 2022 could be astronomically high capping downside risks.


Indonesian Coal = the New Tobacco? Dividend Bonanza Coming: 48-65% Dividend Yields Possible

Equity Bottom-Up

It has been almost two years since we last wrote about <a href="https://www.smartkarma.com/entities/geo-energy-resources-ltd" target="_blank" data-smartkarma-citation="entities:8717:1" rel="noopener">Geo Energy Resources (GERL SP)</a>. Our last insight can be found here <a href="https://www.smartkarma.com/insights/geo-energy-gerl-sp-distressed-bonds-and-share-price-versus-optimistic-management-who-is-right" target="_blank" data-smartkarma-citation="insights:34887" rel="noopener">Geo Energy (GERL SP): Distressed Bonds and Share Price Versus Optimistic Management; Who Is Right?</a> How things have changed!Back in late 2019, the coal price was hovering between 20-30 USD, Macquarie had bought 5% of the company for 0.29 SGD/share in November 2018 and Geo was generating losses as the coal price was below its cost of production. Entering 4Q21 the coal price is at stratospheric highs (117 USD for October 2021 delivery) and Geo is earning record profits.In a public disclosure, the company announced it made 26.5M USD in EBITDA in July 2021 alone. This was with coal prices around +/-50 USD/ton. Today coal prices are well over 100 USD. We estimate at current prices Geo is making at least 45M-50M USD in EBITDA every month! Compare this to the market cap of 320M USD currently. In 2H EBITDA at current market prices could total +/- 225M USD alone. 1H2021 EBITDA was 78M USD. Recall, Geo has no debt and 60M USD in cash.Mr. Market is slowly waking up to this reality pushing the stock up over 70% YTD (most of the gain came in the last few trading sessions). Many Indonesian-listed peers such as <a href="https://www.smartkarma.com/entities/adaro-energy-tbk-pt" target="_blank" data-smartkarma-citation="entities:6061:1" rel="noopener">Adaro Energy (ADRO IJ)</a>, <a href="https://www.smartkarma.com/entities/tambang-batubara-bukit-asam" target="_blank" data-smartkarma-citation="entities:1189:1" rel="noopener">Tambang Batubara Bukit Asam (PTBA IJ)</a>, and coal contractor <a href="https://www.smartkarma.com/entities/united-tractors-tbk-pt" target="_blank" data-smartkarma-citation="entities:698:1" rel="noopener">United Tractors (UNTR IJ)</a> have also underperformed vs the underlying commodity.  However, this is not true of US-listed peers such as <a href="https://www.smartkarma.com/entities/consol-energy-inc-61c2f282-fc00-497d-9066-606d78f6fe82" target="_blank" data-smartkarma-citation="entities:26245:1" rel="noopener">Consol Energy (CEIX US)</a> and <a href="https://www.smartkarma.com/entities/peabody-energy-corp" target="_blank" data-smartkarma-citation="entities:6430:1" rel="noopener">Peabody Energy (BTU US)</a> which are up 345% and 606% respectively YTD.We expect a 4Q21 catch-up trade-in Indonesian-related coal names that could be violent. While prices will surely cool off in 2022 they might not drop all the way below the cost of production once again. Geo has a 30% dividend policy so investors are sure to see massive dividends (est. 18% div yield) come March 2022. Board member Jim Rogers should hopefully make sure the cash is not squandered on doing an expensive M&amp;A deal but is returned to shareholders.

It has been almost two years since we last wrote about Geo Energy Resources (GERL SP). Our last insight can be found here Geo Energy (GERL SP): Distressed Bonds and Share Price Versus Optimistic Management; Who Is Right? How things have changed!Back in late 2019, the coal price was hovering between 20-30 USD, Macquarie had bought 5% of the company for 0.29 SGD/share in November 2018 and Geo was generating losses as the coal price was below its cost of production. Entering 4Q21 the coal price is at stratospheric highs (117 USD for October 2021 delivery) and Geo is earning record profits.In a public disclosure, the company announced it made 26.5M USD in EBITDA in July 2021 alone. This was with coal prices around +/-50 USD/ton. Today coal prices are well over 100 USD. We estimate at current prices Geo is making at least 45M-50M USD in EBITDA every month! Compare this to the market cap of 320M USD currently. In 2H EBITDA at current market prices could total +/- 225M USD alone. 1H2021 EBITDA was 78M USD. Recall, Geo has no debt and 60M USD in cash.Mr. Market is slowly waking up to this reality pushing the stock up over 70% YTD (most of the gain came in the last few trading sessions). Many Indonesian-listed peers such as Adaro Energy (ADRO IJ), Tambang Batubara Bukit Asam (PTBA IJ), and coal contractor United Tractors (UNTR IJ) have also underperformed vs the underlying commodity.  However, this is not true of US-listed peers such as Consol Energy (CEIX US) and Peabody Energy (BTU US) which are up 345% and 606% respectively YTD.We expect a 4Q21 catch-up trade-in Indonesian-related coal names that could be violent. While prices will surely cool off in 2022 they might not drop all the way below the cost of production once again. Geo has a 30% dividend policy so investors are sure to see massive dividends (est. 18% div yield) come March 2022. Board member Jim Rogers should hopefully make sure the cash is not squandered on doing an expensive M&amp;A deal but is returned to shareholders.

Geo Energy: Indonesian Coal Market Beneficiary Trading at Distressed Multiple

Indonesia

PT Adaro Energy Tbk is a coal mining company. The Company and its subsidiaries currently deal in coal mining and trade, coal infrastructure and logistics, and mining contractor services.

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Adaro Energy (ADRO IJ)