Hi everyone, sorry that this post came pretty late, as I have been busy with work. I have received several inquiries from many readers on my opinion of GSS Energy. So here’s some of my two cents, since I have attended the AGM. Overall, the management strike me as very friendly and keen to engage investors. CEO Sydney even gave me his personal number so that I could contact him if I have any questions. The management have also been very prudent in their finances in order to run both engines of the business well.
1) On dividend policy
The management began the meeting by sharing what has happened for the company during the past financial year. One point worthy to note is that, the board have planned to reward shareholders once the oil & gas business is on track. Most likely, this “reward” is coming in the form of a dividend. Furthermore, if I remember correctly, GSS did announce that they are planning to commit to a 20%-25% payout ratio.
2) On oil & gas business
The management did admit that there have been some delay from the Indonesian government in terms of the approvals needed for them to monetise the gas. For the uninitiated, GSS struck oil & gas in the old wells that they ventured into. The surprise discovery of gas in the well, forced the management to re-strategise and look at gaining monetising gas first before extracting the oil. CEO Sydney mentioned that all the work that is required of GSS Energy for monetisation of the gas have been done. Now the ball is in the Indonesian government to give the final approval so that they can start the extraction process.
Some shareholder also asked if there is a risk that the Indonesian government will not give the approval. On that note, the management is rather confident that it should go through as GSS have been one of the few oil players that have gone from oil discovery to extraction in the shortest period of time (about 3 years). Furthermore, the national oil company, Pertamina have a share of the profit as well. Hence, it is only a matter of time that they gain the necessary paper work. Now that the elections in Indonesia is over, that should speed things up once everything is back in order.
CEO also said that the offtaker of the gas have been more or less confirmed. CEO said that if everything were to go as schedule, they should be able to monetise the gas by Q4, 2019. GSS is also actively seeking for ways to strike partnerships with other companies to co-invests in the Trembul field which can immediately unlock the potential of the oil field. There have been candidates that they are already talking with, so we shall see how that pans out.
3) On PE Business
CEO said that the PE business is starting to gain momentum despite an industry wide slowdown faced by many of their competitors. Previously, they have made several strategic decisions, for example to build a new factory in China. This have positioned them strategically to latch onto new opportunities. For example, many MNCs are looking at the “China + One” strategy, where they look at one other place to do their manufacturing. GSS strong foothold in Indonesia, allows them to benefit from this macro trend, to date, CEO mentioned that there have been “a lot of enquiries and opportunities to go and expand the business”.
CEO also unveiled that a strategy to move GSS PE business to the next curve from OEM focus to ODM. GSS PE business have been well established in the OEM space where they had worked with big companies like Philips and Lego. CEO felt that in order for GSS PE business to lead competitively in the next 40 years, they would need to move up the value chain into ODM. This meant engaging their business partners to explore co-designing their product. This not only bring in design revenue, it also help to secure business for their PE side as they could bundle their services together.
4) On new E-bike JV
Recently, GSS announced that they have done a new JV with a Korean company and the Lamborgini family to design and sell a new form of E-bike targeting the SEA market. There have been a lot of comments from readers of GSS Energy on their decision to do this. I raised this as well and CEO shared the management’s thought process on this. GSS own 51% of this JV and have secured the branding of Lamborgini to endorse their bikes. CEO shared that the Lamborgini brand began from a motorcycle but as they pivoted into luxury cars, they stopped producing motorcycles. Hence the Lambo family wanted to revive their motorcycle line and decided to work with GSS who have a great manufacturing expertise to work on reviving this line of vehicle.
CEO shared why he thought the E-bike industry is a good industry for them to enter. There are close to 200 millions 2 wheelers in SEA alone, Indonesia, Thailand and Vietnam stands a huge proportion of the bikes in SEA. Each year there are about 13-18 million bikes that are replaced. Capturing just 1% of that market would give them about 180k bikes a year. Furthermore, they will be one of the first few manufacturer in the region to introduce E-bikes in the region allowing them to be the first-mover.
With the branding of Lambo, they are planning to price the bike in the mid to high end range of bikes. GSS have been proceeding with caution as they have been producing minute batches and testing the motorbikes with their users to make sure that they like it. CEO also mentioned that they have received overwhelming orders for their bikes, that they have to turn them down so that they can focus on building quality product.
As all manufacturing will be done in-house, orders for the bike business will go to GSS PE business, further building a more defensive revenue stream.
the two main themes from the AGM, centers around building sustainability in the oil business by exploring partnerships and innovating upstream in the PE business. The management have been friendly and candid when I was engaging them personally. Another worthy point to know is that CEO owns a huge share of the company making him personally vested to ensure that GSS does well. Wishing a fruitful FY ahead for GSS! That’s all from me folks!
Disclaimer: I am vested. Please dyodd!