Synthesis Energy Systems Inc (NASDAQ:SYMX) is passing a tipping point for interest outside China and is focusing on near-term orders in 2017 with a diversity of opportunities to monetize its SES Gasification Technology. We reiterate our Buy rating.
Summary of SES’s second fiscal quarter of fiscal 2017:
·Revenues of $5,000 in 2Q17, and a net loss of $0.6 million or $0.01 per share.
·SES has identified the potential for inclusion in projects with total project cost of $20 billion (SES estimates the potential for SGT as a percentage of total project cost could be 20%, with margins of 20% to 30%), with $2 billion over 3 to 5 years which could begin to be reduced to orders in the next 6 to 12 months.
·The Callide thermal coal mine (SES owns 11%) is operating ahead of schedule.
SES reports that interest in SGT outside China has increased, which suggests to us that SES may have passed a tipping point. SES is now recognized internationally as the leading commercially proven and sustainable (unsubsidized) clean coal gasification technology, capable of offering a low-cost replacement for more expensive LNG in areas outside North America. SES’s 37% interest of Australian Future Energy led to the acquisition of an 11% interest in Batchfire Resources’ Callide thermal coal mine (a long-lived major coal mine in Australia during a period of rising coal prices).
This presents a tangible example of how SES may acquire interests in operating coal projects, and potentially deploy SGT in accompanying gasification facilities to process unmarketable waste-coal into valuable gasses and reduce environmental liabilities. In our opinion, this potentially represents a template for penetrating international markets by enhancing the economics of existing coal mines worldwide. We maintain our Buy rating and price target of $2.70 per share.