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.

All of the research reports are broadly and freely disseminated globally to leading Fund Managers and analysts who invest specifically in mid-size equities, and also on leading investment information platforms including: Bloomberg, Thomson Reuters, FactSet etc.

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 stellar revenue growth along with robust operating and financial performance for the first half of 2021, much ahead of our expectations. The company’s revenues increased by 105% YoY for 1HFY2021 to US$217.2 mn, in comparison to US$106.2 mn for the 1HFY2020 inclusive of the impact of hedging. The EBITDA excluding non-recurring items and foreign exchange nearly tripled to US$123.3 mn (30 June 2020: US$33.0 mn) contributed to the increase in revenues for the company. The net profit increased multifold to US$98.3 mn in 1HFY2021 as compared to US$5.9 mn in 1H2020. This strong set of results was achieved amid a number of challenges, such as the shortcomings of the third-party mining contractors and railway congestion issues that curtailed deliveries. As these are short-term issues, the company is confident that it’s performance will improve further as the issues subside eventually.&nbsp; Key highlights of 1H2021 were:
<ul type="disc">
<li>Revenue up 105% YoY to US$217.2 mn, Production capacity utilisation at 84% (30 June 2020: 89%)</li>
<li>Cash balance increased to US$67.0 mn (31 December 2020: US$20.4 mn)</li>
<li>EBITDA up 2.74x YoY to US$123.3 mn (30 June 2020: US$33 mn)</li>
<li>Net Profit Increased 15.5x to US$98.3 mn (30 June 2020: US$5.9 mn) driven by strong iron ore price. Net Profit was almost equal to 0.5x Market Capitalization.</li>
<li>Early repayment of Gazprombank loan totaling US$50 mn in July and August 2021; current cash balance of US$45 mn</li>
<li>Robust 65% Iron Ore average pricing up 100% YoY due to increased demand from China and restricted supply from major iron producers.</li>
<li>In 1H2021, the average selling price of iron ore concentrate achieved by IRC before hedging was US$186.3 per dry metric ton (1H2020: US$85.4 per dry metric ton), an increase of 118.1%</li>
<li>Net cash generated from operations up 3.3x to US$86.4 mn (30 June 2020: US$20.3 mn), mainly due to increase in the price of iron ore.&nbsp;</li>
</ul>
The robust increase in the price of iron ore more than compensated for the relatively lower sales and production volume. The EBITDA grew by 2.74 times to a record high level of US$123.3 mn in 1HFY2021 as compared to US$33 mn in 1HFY2020. The EBITDA figure excluding any non-recurring items and without the impact of foreign exchange is one of the key performance indicators for a mining company. The operating performance would have been better if not for mining contractors’ issues and logistic difficulties caused by COVID-19. The average capacity utilisation for 1HFY2021 was 84% as compared to 89% in 1HFY2020. &nbsp;
The company reported a net profit of US$98.3 mn in 1HFY2021 in comparison to a net profit of US$5.9 mn in 1HFY2020 due multifold improvement in EBITDA in the first half of 2021. The financial expenses of US$10.85 mn were lower by 18.7% due to reduction in the LIBOR rate in the 1HFY2021 as compared to the same period previous year. With higher iron ore prices in comparison to the previous year the company is expected to continue posting significant growth in EPS in FY2021 and beyond.
The company reported cash costs of US$65.6 per ton in 1HFY2021 as compared to US$48.8 per ton in 1HFY2020, which is higher by 34.4%, due to an increase in mining and transportation costs. The K&amp;S mine is not yet operating at full production capacity and the cash cost has not yet reached its optimal level. Once the K&amp;S mine is able to produce at full capacity and achieve the highest economies of scale, optimal levels for cash costs per ton would also be achieved. In addition to this, commencement of operations of the Amur River Bridge could also potentially help further reduce cash costs thereby allowing the company to possibly reach minimum cash costs levels.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/027/original/image_71222553331630381135800.png?1630381135" width="459" height="303" class="editor-image img-responsive" data-smartkarma-image-id="227027"></figure>
&nbsp;Raise Target Price to 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 increase our one-year price target on IRC to HK$0.52 per share. The new 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.
For further details and financial model, please see our attached Earnings Update Report.

IRC [1029_HK; HK$1,880 mn/US$245 mn market cap; HK$5.1 mn total average daily value traded] reported stellar revenue growth along with robust operating and financial performance for the first half of 2021, much ahead of our expectations. The company’s revenues increased by 105% YoY for 1HFY2021 to US$217.2 mn, in comparison to US$106.2 mn for the 1HFY2020 inclusive of the impact of hedging. The EBITDA excluding non-recurring items and foreign exchange nearly tripled to US$123.3 mn (30 June 2020: US$33.0 mn) contributed to the increase in revenues for the company. The net profit increased multifold to US$98.3 mn in 1HFY2021 as compared to US$5.9 mn in 1H2020. This strong set of results was achieved amid a number of challenges, such as the shortcomings of the third-party mining contractors and railway congestion issues that curtailed deliveries. As these are short-term issues, the company is confident that it’s performance will improve further as the issues subside eventually.&nbsp; Key highlights of 1H2021 were:

Revenue up 105% YoY to US$217.2 mn, Production capacity utilisation at 84% (30 June 2020: 89%)
Cash balance increased to US$67.0 mn (31 December 2020: US$20.4 mn)
EBITDA up 2.74x YoY to US$123.3 mn (30 June 2020: US$33 mn)
Net Profit Increased 15.5x to US$98.3 mn (30 June 2020: US$5.9 mn) driven by strong iron ore price. Net Profit was almost equal to 0.5x Market Capitalization.
Early repayment of Gazprombank loan totaling US$50 mn in July and August 2021; current cash balance of US$45 mn
Robust 65% Iron Ore average pricing up 100% YoY due to increased demand from China and restricted supply from major iron producers.
In 1H2021, the average selling price of iron ore concentrate achieved by IRC before hedging was US$186.3 per dry metric ton (1H2020: US$85.4 per dry metric ton), an increase of 118.1%
Net cash generated from operations up 3.3x to US$86.4 mn (30 June 2020: US$20.3 mn), mainly due to increase in the price of iron ore.&nbsp;

The robust increase in the price of iron ore more than compensated for the relatively lower sales and production volume. The EBITDA grew by 2.74 times to a record high level of US$123.3 mn in 1HFY2021 as compared to US$33 mn in 1HFY2020. The EBITDA figure excluding any non-recurring items and without the impact of foreign exchange is one of the key performance indicators for a mining company. The operating performance would have been better if not for mining contractors’ issues and logistic difficulties caused by COVID-19. The average capacity utilisation for 1HFY2021 was 84% as compared to 89% in 1HFY2020. &nbsp;
The company reported a net profit of US$98.3 mn in 1HFY2021 in comparison to a net profit of US$5.9 mn in 1HFY2020 due multifold improvement in EBITDA in the first half of 2021. The financial expenses of US$10.85 mn were lower by 18.7% due to reduction in the LIBOR rate in the 1HFY2021 as compared to the same period previous year. With higher iron ore prices in comparison to the previous year the company is expected to continue posting significant growth in EPS in FY2021 and beyond.
The company reported cash costs of US$65.6 per ton in 1HFY2021 as compared to US$48.8 per ton in 1HFY2020, which is higher by 34.4%, due to an increase in mining and transportation costs. The K&amp;S mine is not yet operating at full production capacity and the cash cost has not yet reached its optimal level. Once the K&amp;S mine is able to produce at full capacity and achieve the highest economies of scale, optimal levels for cash costs per ton would also be achieved. In addition to this, commencement of operations of the Amur River Bridge could also potentially help further reduce cash costs thereby allowing the company to possibly reach minimum cash costs levels.

&nbsp;Raise Target Price to 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 increase our one-year price target on IRC to HK$0.52 per share. The new 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.
For further details and financial model, please see our attached Earnings Update Report.

IRC [1029_HK]: +105% Sales Growth, Record Profit and EBITDA, 2.4x P/E : Earnings Update

Irc Ltd

IRC [1029_HK]: +105% Sales Growth, Record Profit and EBITDA, 2.4x P/E : Earnings Update