IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Inner Mongolia Yitai Coal Company Ltd / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/inner-mongolia-yitai-coal-company-ltd" target="_blank" data-smartkarma-citation="entities:14904:1" rel="noopener">Inner Mongolia Yitai Coal Company Ltd (3948 HK)</a>'s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close. </li>
<li>The key conditions are approval by at least 75% of independent H Shareholders (&lt;10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.  </li>
<li>The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.</li>
</ul>



Inner Mongolia Yitai Coal Company Ltd (3948 HK)'s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close. 
The key conditions are approval by at least 75% of independent H Shareholders (&lt;10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.  
The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.


Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

Shougang Fushan Resources / Equity Bottom-Up

<ul>
<li>After declaring a whopping 18% dividend yield in FY22, we expect <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)'s </a>generous payments to continue as they could declare another 14% in FY23e.</li>
<li>The margin of safety is high as there is a cash buffer (55% of the market cap in cash) and 10-year average annual free cash flows of 1.5 bn HKD.</li>
<li>China's FAI stimulus and stabilizing the steel margins could be catalysts to drive the share price forward in the short term.</li>
</ul>


After declaring a whopping 18% dividend yield in FY22, we expect Shougang Fushan Resources (639 HK)'s generous payments to continue as they could declare another 14% in FY23e.
The margin of safety is high as there is a cash buffer (55% of the market cap in cash) and 10-year average annual free cash flows of 1.5 bn HKD.
China's FAI stimulus and stabilizing the steel margins could be catalysts to drive the share price forward in the short term.


Fushan Energy: Coking Coal Weak But 14% Yield and 55% of the Mkt Cap in Cash

Perennial Energy Holdings Ltd / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a> has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider <a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> in his insight yesterday <a href="https://www.smartkarma.com/insights/msci-may-21-index-rebalance-preview-review-period-is-a-wrap" target="_blank" data-smartkarma-citation="insights:50978" rel="noopener">MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap</a>. We would take this opportunity to sell into strength.
There is better value for money in owning <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a>, which I have written about in my insight <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>. Trading at 2.5x EV-EBITDA with a 10% dividend yield <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> offers way more stability and margin of safety to <a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a>.

Perennial Energy Holdings Ltd (2798 HK) has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider Brian Freitas in his insight yesterday MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap. We would take this opportunity to sell into strength.
There is better value for money in owning Shougang Fushan Resources (639 HK), which I have written about in my insight Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside. Trading at 2.5x EV-EBITDA with a 10% dividend yield Shougang Fushan Resources (639 HK) offers way more stability and margin of safety to Perennial Energy Holdings Ltd (2798 HK).

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

In our previous insight on <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a>, <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>, we highlighted the stock as a good pure play on coking coal with :<ul>
<li>More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.</li>
<li>FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.</li>
<li>The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. </li>
</ul>We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> in the short-term.

In our previous insight on Shougang Fushan Resources (639 HK), Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside, we highlighted the stock as a good pure play on coking coal with :
More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.
FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.
The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. 
We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit Shougang Fushan Resources (639 HK) in the short-term.

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> is a deep value pure play on coking coal.  The broad thesis of investing in this name is:
<ul>
<li>
The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.</li>
<li>
54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).</li>
<li>
It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). </li>
<li>
The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. </li>
</ul>
We think that Chinese coking coal prices have their downside capped as :
<ul>
<li>Chinese pig iron production remains elevated.</li>
<li>Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.</li>
<li>China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.</li>
</ul>
At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:
<ol>
<li>
Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.</li>
<li>
Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. </li>
</ol>

Shougang Fushan Resources (639 HK) is a deep value pure play on coking coal.  The broad thesis of investing in this name is:


The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.

54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).

It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). 

The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. 

We think that Chinese coking coal prices have their downside capped as :

Chinese pig iron production remains elevated.
Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.
China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.

At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:


Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.

Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. 


Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Hong Kong

Shougang Fushan Resources Group Ltd. produces and sells coking coal products and side products in China. The Company is principally engaged in mining of coking coal and production and sales of raw and clean coking coal,

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Shougang Fushan Resources (639 HK)

Fushan Energy: Coking Coal Weak But 14% Yield and 55% of the Mkt Cap in Cash

Fushan Energy 639 HK is a coking coal producer in China, trading at 5.8x PE FY23 with a 14% dividend yield and 55% of the market capitalization in...

Sameer Taneja

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja

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Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share

Shareholders will be supportive of the attractive offer. Timing is the key risk. At the last close, the gross spread is 9.0%.

Arun George

Fushan Energy: Coking Coal Weak But 14% Yield and 55% of the Mkt Cap in Cash

Fushan Energy 639 HK is a coking coal producer in China, trading at 5.8x PE FY23 with a 14% dividend yield and 55% of the market capitalization in...

Sameer Taneja

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

Fushan is a pure-play on increasing Chinese domestic coking coal prices. With over 45% of the market capitalization in cash and an 8.5% dividend...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja