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>
<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> ended H1 FY24 with over 10.5 bn HKD of net cash and investments, compared to 12.7 bn HKD of market capitalization. </li>
<li>At 1600 RMB/ton coking coal prices (current spot price), the business will be able to generate 1.1 bn HKD of profits, with an 80% payout implying a 7% dividend yield. </li>
<li>The current spot prices are 16% below the average five-year price of 1900 RMB/ton ( yield 10%), and at these prices, the company still makes an EBITDA margin of 40-45%. </li>
</ul>



Shougang Fushan Resources (639 HK) ended H1 FY24 with over 10.5 bn HKD of net cash and investments, compared to 12.7 bn HKD of market capitalization. 
At 1600 RMB/ton coking coal prices (current spot price), the business will be able to generate 1.1 bn HKD of profits, with an 80% payout implying a 7% dividend yield. 
The current spot prices are 16% below the average five-year price of 1900 RMB/ton ( yield 10%), and at these prices, the company still makes an EBITDA margin of 40-45%. 


Shougang Fushan Resources (639 HK): Cash 83% of Market Cap, 11% Trailing Dividend Yield

<ul>
<li>
<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 play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).</li>
<li>At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.</li>
<li>With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).</li>
</ul>



Shougang Fushan Resources (639 HK) is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).
At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.
With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).


Fushan Energy (639 HK): Coking Coal Prices To Strengthen With Anglo Accident

<ul>
<li>We listened to the <a href="https://whitehavencoal.com.au/wp-content/uploads/2023/10/Whitehaven-Investor_update.mp4" target="_blank" rel="noopener">conference call </a>held by <a href="https://www.smartkarma.com/entities/whitehaven-coal-ltd" target="_blank" data-smartkarma-citation="entities:14253:1" rel="noopener">Whitehaven Coal (WHC AU)</a> to update investors on its acquisition of BHP's coking coal mines and  Q2 2024 production. </li>
<li>Based on spot prices of coking coal over 350 USD/ton and cash costs of 20% lower than the average of 2 years, the EV-EBITDA of acquisition is 1.8x</li>
<li>The acquisition could be massively accretive if coking coal prices remain stronger for longer as the company pivots its strategy to becoming a large met coal producer. </li>
</ul>


We listened to the conference call held by Whitehaven Coal (WHC AU) to update investors on its acquisition of BHP's coking coal mines and  Q2 2024 production. 
Based on spot prices of coking coal over 350 USD/ton and cash costs of 20% lower than the average of 2 years, the EV-EBITDA of acquisition is 1.8x
The acquisition could be massively accretive if coking coal prices remain stronger for longer as the company pivots its strategy to becoming a large met coal producer. 


Whitehaven Coal: Great Acquisition, Cash Gone, Now At The Mercy of The Cycle

<ul>
<li>
<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> experienced a decline of 23% YoY in NPAT for H1 2023 despite coal prices falling 22% YoY due to improved coking coal recovery rates. </li>
<li>Gross cash and Investments totaled 9.4 bn HKD. Netting the dividend/tax payable and buyback of 1.4/0.4/0.3 bn HKD, net cash is 7.3 bn (60% of mktcap) and growing. </li>
<li>We estimate a dividend payment of 32 cents (13% yield) for FY23e; H1 FY23 dividend payment was 10 cents ( H1 FY22: 15 cents  FY22: 43 cents).</li>
</ul>



Shougang Fushan Resources (639 HK) experienced a decline of 23% YoY in NPAT for H1 2023 despite coal prices falling 22% YoY due to improved coking coal recovery rates. 
Gross cash and Investments totaled 9.4 bn HKD. Netting the dividend/tax payable and buyback of 1.4/0.4/0.3 bn HKD, net cash is 7.3 bn (60% of mktcap) and growing. 
We estimate a dividend payment of 32 cents (13% yield) for FY23e; H1 FY23 dividend payment was 10 cents ( H1 FY22: 15 cents  FY22: 43 cents).


Shougang Fushan: Efficiency Gains Help H1 2023, Cash ~60% of Mkt Cap, FY23 Yield 13%

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

<ul>
<li>
<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> has launched a partial offer to acquire a maximum of 125.0m shares (2.47% of outstanding) at HK$2.40 per share, a 17.6% premium to the undisturbed price.</li>
<li>The partial offer is conditional on approval by more than 50% of disinterested shares and the shareholder approval of the whitewash waiver. There is no minimum acceptance condition.</li>
<li>The 2020 partial offer, which was at a 9.3% premium to the undisturbed price and -17% below the current offer, was overwhelmingly approved. Therefore, the current offer should be approved.  </li>
</ul>



Shougang Fushan Resources (639 HK) has launched a partial offer to acquire a maximum of 125.0m shares (2.47% of outstanding) at HK$2.40 per share, a 17.6% premium to the undisturbed price.
The partial offer is conditional on approval by more than 50% of disinterested shares and the shareholder approval of the whitewash waiver. There is no minimum acceptance condition.
The 2020 partial offer, which was at a 9.3% premium to the undisturbed price and -17% below the current offer, was overwhelmingly approved. Therefore, the current offer should be approved.  


Shougang Fushan Resources (639 HK): Partial Offer at HK$2.40

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)