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GSS Energy – Unique And Interesting Business Model
Corporate Digest | 13 February 2015
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By: Ernest Lim
Articles (134) Profile

Pursuant to my writeup on GSS Energy (formerly known as Giken Sakata) on 1 Oct 2014 (see writeup here), GSS Energy has weakened from $0.315 to a low of $0.245 in mid January before closing at $0.270 on 27 January 2015.

This was down 14 percent as compared to 1 October 2014. To put into perspective, Rex and RH Petrogas have fallen about 33 percent and 44 percent respectively over the same period.

At the time of doing this writeup, GSS Energy has been suspended from trading due to its proposed restructuring by way of a scheme of arrangement. It will resume trading under the name of GSS Energy Limited. It closed at $0.270 on 27 January 2015 before the suspension.

As one of GSS Energy’s main businesses is oil production, the >50 percent slump in oil price has led many investors to reconsider its business prospects.

Impact On Oil Price Slump Manageable

GSS Energy sells their oil to Pertamina and the selling price is fixed for a year, subject to an annual review by Pertamina. According to management, if Pertamina wishes to change the selling price, it also has to change the USD/IDR FX rate.

In other words, Pertamina can either keep the selling price unchanged, or change both the selling price as well as the USD/IDR FX rate.

USD/IDR has appreciated approximately 41 percent from USD/IDR 9,000 (their last contracted rate) to 12,700. Thus, the favourable move in USD/IDR is likely to mitigate the possible fall in their selling price to some extent.

Senergy Report On Three Oil Fields – A Near Term Catalyst

Senergy is likely to release the valuation report on GSS Energy’s three fields (Kawengan, Trembul and Gabus) in 1Q 2015.

For their first two fields, namely D&W and Tunggul oil fields, Senergy valued them on the best scenario net present value of US$195 million, or $263 million based on a 10 percent discount rate. (See Table 1 below)

Table 1: Projected net present value of D&W and Tungkul fields using a 10 percent discount rate

Kawengan, Trembul and Gabus fields have at least 161 oil wells vs the 131 wells from the D&W and Tungkul fields.

In addition, according to management, Trembul and Gabus fields have deeper oil wells than the other fields, providing greater potential for the production of oil.

Thus, it is likely that the three fields should fetch a higher valuation (notwithstanding the drop in the oil price) than D&W and Tunggul oil fields.

With both valuation reports on GSS Energy’s five fields, this should shed some light on its reserves valuation and reflect the stark difference between reserves valuation and its market capitalization currently valued at $128 million as of 27 Jan 2015.

Takes Delivery Of Three More Rigs This Year

As of end Nov 2014, GSS Energy produced about 1,070 barrels of oil per day. According to DMG report dated Jan 2015, GSS Energy has one land rig in operation and is expected to take delivery of three land rigs in 2015.

This should increase their oil production in the months ahead.

Precision Engineering Business Performed Well In 2014

Giken’s FY14 revenue from its precision engineering business dropped 46 percent from $126.8 million in FY13 to $69.0 million in FY14.

However, net profit soared 475 percent from $446K in FY13 to $2.1 million in FY14. According to their FY14 results press release, management is positive on its contract manufacturing business which should bode well for their FY15F results.

1HFY15F And FY15F Results Likely To Be Strong

Besides the positive outlook on GSS Energy’s precision engineering business, there will be maiden contribution from its oil business in 1HFY15F results onwards.

Ceteris paribus, FY15F should be a better year for GSS.


After my writeup on GSS Energy on 1 Oct 2014, DMG Securities and Religare have initiated coverage with target prices of $0.650 and $0.510 respectively (See Table 1 below).

Personally, it would be good if Senergy release the valuation report on the other three fields. This would serve as an alternative independent valuation yard stick for the investors.

Table 1: GSS analysts’ target price

Giken’s Chart Analysis

Based on Chart 1 below, GSS Energy has been entrenched in a downtrend since Jun 2014. It has to breach the strong resistance around $0.290 – 0.300 with volume expansion for the chart to turn positive.

Near term supports and resistances are at $0.260 – 0.265 / 0.245 & $0.280 / 0.290 – 0.300 respectively.

Chart 1: GSS entrenched in a strong downtrend

Conclusion – Unique business model, less affected by swings in oil price

In a nutshell, although one of GSS Energy business segments (i.e. oil production) is the least favoured sector now, there is some merit in GSS Energy oil business model.

It is noteworthy that the >50% slump in oil price may not affect GSS Energy to such a large extent.

However, in order for GSS Energy share price to re-rate, it depends on the company’s FY15F results, Senergy’s report on its three fields and management’s communication of their unique business model to the investment community.

Readers who are interested should take a look at their website for more information. You can also email me at for the analyst reports on GSS.

Ernest Lim is a CFA, CA and has worked at GIC Special Investment. He has a solid feel of the markets and financial world and is now a remisier.

Please click here for more information about this author.

GSS Energy  0.159 -- --   
Business: Co is engaged in the precision engineering business. [FY16 Geographical] Indonesia (53.3%), Singapore (19.4%), China (14.1%), others (13.2%).

Insight: May-17, 1Q17 revenue rose 28.3% contributed by the... Read More

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