Stock research on global mid-cap companies

Evaluate Research

Evaluate Research provides institutional quality stock research on small-cap and  mid-cap companies on a global basis, thus helping connect investors with the company.

At Evaluate Research, we provide free of cost to all investors a 20-25 page Initiation Report which evaluates in great detail all aspects of the company:  growth opportunities, catalysts, business description, competitive positioning, SWOT analysis, risks, etc.  In addition, we determine specific price targets for the company based on detailed 5-year complete forecasts of financial statements including IS, BS, CF, ratios, etc.  Finally, whereas many sell-side brokers offer sketchy and irregular ongoing maintenance research of companies, if not outright dropped or termination of coverage, at Evaluate Research we systematically monitor and regularly publish Update Notes covering quarterly earnings, major corporate events, etc.

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Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

IRC [1029_HK; HK$1,880 mn/US$245 mn market cap; HK$5.1 mn total average daily value traded] reported strong sales volume growth of 10% QoQ for the third quarter of FY2021 to 0.70 million tons, in comparison to 0.63 million tons for the second quarter of FY2021 despite temporary congestion issues.&nbsp; Production averaged 81% of its capacity in the third quarter of FY2021 and current capacity continues to be at 84% levels. The production volume slightly decreased by 3.1% to 0.654 million tons in the third quarter of FY2021 on account of lower grades of Fe magnetic from the Kimkan West pit. The company has a long-term plan being implemented to sort out the production issues with the development of the Sutara deposit. The Sutara pit with a higher grade of Fe magnetic will be the long-term solution going forward and is likely to be operational by the end of 2022 or early 2023.
The robust increase in the price of iron ore will more than compensate for the marginally lower production volume for the third quarter of 2021, which will reflect in the financial performance of the company for the second half of 2021. Also, the sales volume in terms of percentage has increased in double digits in the third quarter, which is encouraging. Key highlights of Q32021 were:
<ul type="disc">
<li>Q32021 - Sales Volume up 10% QoQ.</li>
</ul>
<ul type="disc">
<li>Average Production capacity utilisation at 81% for the quarter, currently at 84%.</li>
</ul>
<ul type="disc">
<li>Cash balance at US$58.0 mn at the end of September 2021.</li>
</ul>
<ul type="disc">
<li>Early repayment of Gazprombank loan totaling US$70 mn in the third quarter, loan balance reduced to US$118 mn.</li>
</ul>
<ul type="disc">
<li>Average Platt’s 65% iron ore index declined to US$191 per ton; Still 57% higher than 2020 yearly average.</li>
</ul>
<ul type="disc">
<li>Healthy price premium between 65% Fe and 62% Fe of US$27 per ton.</li>
</ul>
<ul type="disc">
<li>Amur River Bridge expected to be in use in the first half of 2022.</li>
</ul>
Maintain Previously Revised Target Price at HK$0.52; 100% Upside
The Net Asset Value per share of IRC has increased by 23.8% to HK$0.52 per share as on 30th June 2021 as compared to HK$0.42 per share on 31st December 2020. Thus, the current stock price of HK$0.27 represents a huge discount of 48% to this NAV. Also, in view of the ramp up in production from the K&amp;S mine to full capacity along with a potential reduction in cash costs due to the completion of the Amur River Bridge, followed by reduced cash outflows due to refinancing of the ICBC loan by Gazprombank facility and an increase in the price of iron ore due to increased demand and supply constraints across the globe, we maintain our previously revised one-year price target on IRC at HK$0.52 per share. The target price implies an upside of 100% over the current stock price of HK$0.27. Our price target implies a P/E multiple of 2.7x on our FY2021 underlying EPS estimate of US2.38 cents and an EV/ EBITDA multiple of 2.7x on our FY2021 EBITDA estimate of US$240 mn. At the current levels, the stock is trading at extremely attractive multiples of just 2.4x P/E and 1.7x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Iron Ore Price Remains Robust Despite Recent Correction
Iron ore prices&nbsp; witnessed a&nbsp; sharp&nbsp; correction&nbsp; in&nbsp; the&nbsp; third&nbsp; quarter&nbsp; of&nbsp; 2021,&nbsp; following&nbsp; a&nbsp; sharp&nbsp; rally in the&nbsp; first&nbsp; half&nbsp; of&nbsp; 2021.&nbsp; Despite the price correction, the average Platt’s 65% iron ore index for the third quarter of 2021 at US$191 per ton is still robust and is 57% higher than the 2020 full year average of US$122 per ton. The volatility of the iron ore price was primarily influenced by the Chinese steel mills production curtailment and market concerns about future iron ore demand. China’s crude steel output slumped by 13.2% YoY in August in order to meet the country’s 2021 flat growth target.&nbsp; In addition, there&nbsp; are&nbsp; concerns&nbsp; about&nbsp; the&nbsp; impact&nbsp; of&nbsp; the&nbsp; China&nbsp; Evergrande&nbsp; issue&nbsp; on&nbsp; China’s property market, which may lead to a decrease in the appetite for steel. At the end of September, the Platt’s 65% iron ore price&nbsp; closed&nbsp; at&nbsp; US$142&nbsp; per&nbsp; ton. Despite the decrease, this level of iron ore price still provides a healthy operating margin for IRC.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/238/925/original/image_44468888321635750098319.png?1635750098" width="511" height="275" class="editor-image img-responsive" data-smartkarma-image-id="238925"></figure>
Higher-grade iron ore continues to be an in-demand product among steelmakers due to its cost effectiveness and the ability to reduce airborne emissions such as carbon dioxide and fine particles. During the first nine months of 2021 the average premium between high-grade 65% iron ore and 62% iron ore&nbsp; increased&nbsp; to&nbsp; US$28&nbsp; per&nbsp; ton. As coking coal prices are high due to China’s embargo on Australian coals, steel mills prefer higher-grade iron ore feedstocks which require less coal during the steel production process.
IRC has taken the opportunity to lock-in the strong iron ore price by hedging about 40% of K&amp;S’s expected 2021 production volume for risk management purposes.
For further details and financial model, please see our attached Trading Update Report.

IRC [1029_HK; HK$1,880 mn/US$245 mn market cap; HK$5.1 mn total average daily value traded] reported strong sales volume growth of 10% QoQ for the third quarter of FY2021 to 0.70 million tons, in comparison to 0.63 million tons for the second quarter of FY2021 despite temporary congestion issues.&nbsp; Production averaged 81% of its capacity in the third quarter of FY2021 and current capacity continues to be at 84% levels. The production volume slightly decreased by 3.1% to 0.654 million tons in the third quarter of FY2021 on account of lower grades of Fe magnetic from the Kimkan West pit. The company has a long-term plan being implemented to sort out the production issues with the development of the Sutara deposit. The Sutara pit with a higher grade of Fe magnetic will be the long-term solution going forward and is likely to be operational by the end of 2022 or early 2023.
The robust increase in the price of iron ore will more than compensate for the marginally lower production volume for the third quarter of 2021, which will reflect in the financial performance of the company for the second half of 2021. Also, the sales volume in terms of percentage has increased in double digits in the third quarter, which is encouraging. Key highlights of Q32021 were:

Q32021 - Sales Volume up 10% QoQ.


Average Production capacity utilisation at 81% for the quarter, currently at 84%.


Cash balance at US$58.0 mn at the end of September 2021.


Early repayment of Gazprombank loan totaling US$70 mn in the third quarter, loan balance reduced to US$118 mn.


Average Platt’s 65% iron ore index declined to US$191 per ton; Still 57% higher than 2020 yearly average.


Healthy price premium between 65% Fe and 62% Fe of US$27 per ton.


Amur River Bridge expected to be in use in the first half of 2022.

Maintain Previously Revised Target Price at HK$0.52; 100% Upside
The Net Asset Value per share of IRC has increased by 23.8% to HK$0.52 per share as on 30th June 2021 as compared to HK$0.42 per share on 31st December 2020. Thus, the current stock price of HK$0.27 represents a huge discount of 48% to this NAV. Also, in view of the ramp up in production from the K&amp;S mine to full capacity along with a potential reduction in cash costs due to the completion of the Amur River Bridge, followed by reduced cash outflows due to refinancing of the ICBC loan by Gazprombank facility and an increase in the price of iron ore due to increased demand and supply constraints across the globe, we maintain our previously revised one-year price target on IRC at HK$0.52 per share. The target price implies an upside of 100% over the current stock price of HK$0.27. Our price target implies a P/E multiple of 2.7x on our FY2021 underlying EPS estimate of US2.38 cents and an EV/ EBITDA multiple of 2.7x on our FY2021 EBITDA estimate of US$240 mn. At the current levels, the stock is trading at extremely attractive multiples of just 2.4x P/E and 1.7x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Iron Ore Price Remains Robust Despite Recent Correction
Iron ore prices&nbsp; witnessed a&nbsp; sharp&nbsp; correction&nbsp; in&nbsp; the&nbsp; third&nbsp; quarter&nbsp; of&nbsp; 2021,&nbsp; following&nbsp; a&nbsp; sharp&nbsp; rally in the&nbsp; first&nbsp; half&nbsp; of&nbsp; 2021.&nbsp; Despite the price correction, the average Platt’s 65% iron ore index for the third quarter of 2021 at US$191 per ton is still robust and is 57% higher than the 2020 full year average of US$122 per ton. The volatility of the iron ore price was primarily influenced by the Chinese steel mills production curtailment and market concerns about future iron ore demand. China’s crude steel output slumped by 13.2% YoY in August in order to meet the country’s 2021 flat growth target.&nbsp; In addition, there&nbsp; are&nbsp; concerns&nbsp; about&nbsp; the&nbsp; impact&nbsp; of&nbsp; the&nbsp; China&nbsp; Evergrande&nbsp; issue&nbsp; on&nbsp; China’s property market, which may lead to a decrease in the appetite for steel. At the end of September, the Platt’s 65% iron ore price&nbsp; closed&nbsp; at&nbsp; US$142&nbsp; per&nbsp; ton. Despite the decrease, this level of iron ore price still provides a healthy operating margin for IRC.

Higher-grade iron ore continues to be an in-demand product among steelmakers due to its cost effectiveness and the ability to reduce airborne emissions such as carbon dioxide and fine particles. During the first nine months of 2021 the average premium between high-grade 65% iron ore and 62% iron ore&nbsp; increased&nbsp; to&nbsp; US$28&nbsp; per&nbsp; ton. As coking coal prices are high due to China’s embargo on Australian coals, steel mills prefer higher-grade iron ore feedstocks which require less coal during the steel production process.
IRC has taken the opportunity to lock-in the strong iron ore price by hedging about 40% of K&amp;S’s expected 2021 production volume for risk management purposes.
For further details and financial model, please see our attached Trading Update Report.

IRC [1029_HK]: +10% Sales Volume Growth, Iron Ore Price Robust, 2.4x P/E

Irc Ltd

IRC [1029_HK]: +10% Sales Volume Growth, Iron Ore Price Robust, 2.4x P/E