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$638 million/US$81 million market cap; HK$5.1 million total average daily value traded] reported strong production growth of 12.1% to 2.06 million tons on a year on year basis for the first nine months ended September 2020 as compared to 2.03 million tons for the same period last year. The company’s production increased by 7.7% YoY for the third quarter of FY2020 to 0.67 million tons, in comparison to 0.62 million tons for the third quarter of FY2019. &nbsp;Production averaged 84% of its capacity in the third quarter of FY2020 despite unusually heavy rain, with current capacity back to normalized 90% levels. The sales volume increased by 10.4% to 2.03 million tons in 9MFY2020 and by 8.3% to 0.65 million tons in Q3FY2020 attributable to the increased output from the K&amp;S mine.&nbsp; Key highlights of the third quarter were:&nbsp;
<ul type="disc">
<li>Production up 12.1% YoY 9MFY2020, 7.7% YoY 3QFY2020&nbsp;</li>
</ul>
<ul type="disc">
<li>Sales Volume up 10.4% YoY 9MFY2020, 8.3% YoY 3QFY2020</li>
</ul>
<ul type="disc">
<li>Average Production capacity utilization at 84% 3Q2020 (3Q2019: 77%)</li>
</ul>
<ul type="disc">
<li>Current Production capacity utilization at 90% in October</li>
</ul>
<ul type="disc">
<li>Robust Iron Ore pricing up 44% YoY due to an increased demand from China and restricted supply from major iron producers</li>
</ul>
<ul type="disc">
<li>During 3QFY2020, a total of US$8.8 million was paid to Gazprombank as principal repayment and interest (3QFY2019 total of US$10.3 million paid)</li>
</ul>
&nbsp;IRC continues to benefit from a strong market price of iron ore, weak Russian Rouble and low market interest rates. The price of 65% Fe Platts benchmark surpassed the US$140 per ton mark in September while Russian Rouble depreciated to RUB78 at the end of the quarter. LIBOR closed the quarter at 0.23%, 185 basis points lower than the same period last year. These positive parameters, together with the solid K&amp;S’s production rate, will contribute hugely to the profitability of IRC.
HK$0.15 PT; 67% Upside
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 of up to US$5/ton due to the completion of the Amur River Bridge, followed by reduced cash outflows due to refinancing of the ICBC loan by Gazprombank facility, we maintain a one year PT on IRC of HK$0.15 per share implying an upside of 67% over the current stock price of HK$0.09. Our price target implies a P/E multiple of 11.3x on our FY2021 EPS estimate of US$0.17 cents and an EV/ EBITDA multiple of 4.8x on our FY2021 EBITDA estimate of US$70 million. At the current levels, the stock is trading at extremely attractive multiples of just 6.7x P/E and 4.1x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Third Quarter Production Update
During the quarter, K&amp;S increased its production volume by 7.7% over the same period last year to produce 0.67 million tons of 65% Fe iron ore concentrate. The year-to-date production was 12.1% higher than the third quarter of FY2019. This satisfactory operating result&nbsp; was&nbsp; achieved&nbsp; despite&nbsp; production&nbsp; disruptions&nbsp; caused&nbsp; by &nbsp;torrential&nbsp; rain.&nbsp; In&nbsp; August&nbsp; and&nbsp; September&nbsp; of&nbsp; 2020,&nbsp; the&nbsp; amount&nbsp; of rainfall in the region was more than twice of the normal level. The unusual weather condition was severe enough for the local government to declare a state of emergency. Towards the end of September, the rainstorms have subsided allowing K&amp;S to resume normal operation. The mine is currently operating at a production rate of 90%.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/168/015/original/image_69147365621603860840794.jpg?1603860843" width="482" height="210" class="editor-image img-responsive" data-smartkarma-image-id="168015"></figure>
&nbsp;
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/168/014/original/image_86452275731603860840795.jpg?1603860843" width="482" height="333" class="editor-image img-responsive" data-smartkarma-image-id="168014"></figure>
&nbsp;Robust Iron Ore Pricing to Continue
Iron ore was one of the best performing commodities in the third quarter of FY2020 and prices continued the upward trend from the second quarter. The Platts 65% Fe index broke through&nbsp; the&nbsp; US$140&nbsp; per&nbsp; ton&nbsp; mark&nbsp; in&nbsp; September,&nbsp; the&nbsp; highest&nbsp; level&nbsp; since&nbsp; 2013,&nbsp; and&nbsp; closed&nbsp; the&nbsp; quarter&nbsp; at&nbsp; a&nbsp; healthy&nbsp; level&nbsp; of&nbsp; US$136 per ton. The price was higher by 44% in comparison to the previous year due to increased demand for iron ore in China and restricted supply from major iron ore producers.&nbsp; As&nbsp; China&nbsp; continues&nbsp; to&nbsp; increase&nbsp; its&nbsp; infrastructure&nbsp; spending&nbsp; to&nbsp; stimulate&nbsp; its&nbsp; economy,&nbsp; the&nbsp; demand&nbsp; for&nbsp; iron&nbsp; ore&nbsp; remains&nbsp; solid.&nbsp; China’s iron ore imports grew for two consecutive quarters to reach 321 million tons in the third quarter of 2020, a rise of 12% and 13% respectively over the previous quarter and the same time last year. At the same time, the iron ore inventories at the Chinese ports dropped by 3% relative to the same time last year. According to a report issued by the S&amp;P Global, investors expect China to launch more incentive plans to help the Chinese steel industry after the closing of “Fourteenth Five-Year Plan” meeting in October and this is expected to provide support for iron ore prices. From the supply side, the normalisation of Brazilian exports of iron ore could take longer, as Brazil is still struggling with the outbreak of COVID-19.&nbsp; These policies would continue to benefit IRC in FY2020 and beyond as the inherent demand for 65% grade iron ore remains high. In&nbsp; October 2020,&nbsp; the&nbsp; price&nbsp; premium&nbsp; for&nbsp; the&nbsp; 65%&nbsp; iron&nbsp; ore&nbsp; over&nbsp; the&nbsp; 62%&nbsp; iron&nbsp; ore&nbsp; amounted&nbsp; to&nbsp; US$12&nbsp; per&nbsp; ton&nbsp; and&nbsp; the&nbsp; forward&nbsp; curves&nbsp; of&nbsp; iron&nbsp; ore&nbsp; prices&nbsp; suggest&nbsp; that the price premium will increase further in FY2021 to an expected US$17 per ton.
For further details and financial model, please see our attached Trading Update Report.
&nbsp;

IRC [1029_HK; HK$638 million/US$81 million market cap; HK$5.1 million total average daily value traded] reported strong production growth of 12.1% to 2.06 million tons on a year on year basis for the first nine months ended September 2020 as compared to 2.03 million tons for the same period last year. The company’s production increased by 7.7% YoY for the third quarter of FY2020 to 0.67 million tons, in comparison to 0.62 million tons for the third quarter of FY2019. &nbsp;Production averaged 84% of its capacity in the third quarter of FY2020 despite unusually heavy rain, with current capacity back to normalized 90% levels. The sales volume increased by 10.4% to 2.03 million tons in 9MFY2020 and by 8.3% to 0.65 million tons in Q3FY2020 attributable to the increased output from the K&amp;S mine.&nbsp; Key highlights of the third quarter were:&nbsp;

Production up 12.1% YoY 9MFY2020, 7.7% YoY 3QFY2020&nbsp;


Sales Volume up 10.4% YoY 9MFY2020, 8.3% YoY 3QFY2020


Average Production capacity utilization at 84% 3Q2020 (3Q2019: 77%)


Current Production capacity utilization at 90% in October


Robust Iron Ore pricing up 44% YoY due to an increased demand from China and restricted supply from major iron producers


During 3QFY2020, a total of US$8.8 million was paid to Gazprombank as principal repayment and interest (3QFY2019 total of US$10.3 million paid)

&nbsp;IRC continues to benefit from a strong market price of iron ore, weak Russian Rouble and low market interest rates. The price of 65% Fe Platts benchmark surpassed the US$140 per ton mark in September while Russian Rouble depreciated to RUB78 at the end of the quarter. LIBOR closed the quarter at 0.23%, 185 basis points lower than the same period last year. These positive parameters, together with the solid K&amp;S’s production rate, will contribute hugely to the profitability of IRC.
HK$0.15 PT; 67% Upside
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 of up to US$5/ton due to the completion of the Amur River Bridge, followed by reduced cash outflows due to refinancing of the ICBC loan by Gazprombank facility, we maintain a one year PT on IRC of HK$0.15 per share implying an upside of 67% over the current stock price of HK$0.09. Our price target implies a P/E multiple of 11.3x on our FY2021 EPS estimate of US$0.17 cents and an EV/ EBITDA multiple of 4.8x on our FY2021 EBITDA estimate of US$70 million. At the current levels, the stock is trading at extremely attractive multiples of just 6.7x P/E and 4.1x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Third Quarter Production Update
During the quarter, K&amp;S increased its production volume by 7.7% over the same period last year to produce 0.67 million tons of 65% Fe iron ore concentrate. The year-to-date production was 12.1% higher than the third quarter of FY2019. This satisfactory operating result&nbsp; was&nbsp; achieved&nbsp; despite&nbsp; production&nbsp; disruptions&nbsp; caused&nbsp; by &nbsp;torrential&nbsp; rain.&nbsp; In&nbsp; August&nbsp; and&nbsp; September&nbsp; of&nbsp; 2020,&nbsp; the&nbsp; amount&nbsp; of rainfall in the region was more than twice of the normal level. The unusual weather condition was severe enough for the local government to declare a state of emergency. Towards the end of September, the rainstorms have subsided allowing K&amp;S to resume normal operation. The mine is currently operating at a production rate of 90%.

&nbsp;

&nbsp;Robust Iron Ore Pricing to Continue
Iron ore was one of the best performing commodities in the third quarter of FY2020 and prices continued the upward trend from the second quarter. The Platts 65% Fe index broke through&nbsp; the&nbsp; US$140&nbsp; per&nbsp; ton&nbsp; mark&nbsp; in&nbsp; September,&nbsp; the&nbsp; highest&nbsp; level&nbsp; since&nbsp; 2013,&nbsp; and&nbsp; closed&nbsp; the&nbsp; quarter&nbsp; at&nbsp; a&nbsp; healthy&nbsp; level&nbsp; of&nbsp; US$136 per ton. The price was higher by 44% in comparison to the previous year due to increased demand for iron ore in China and restricted supply from major iron ore producers.&nbsp; As&nbsp; China&nbsp; continues&nbsp; to&nbsp; increase&nbsp; its&nbsp; infrastructure&nbsp; spending&nbsp; to&nbsp; stimulate&nbsp; its&nbsp; economy,&nbsp; the&nbsp; demand&nbsp; for&nbsp; iron&nbsp; ore&nbsp; remains&nbsp; solid.&nbsp; China’s iron ore imports grew for two consecutive quarters to reach 321 million tons in the third quarter of 2020, a rise of 12% and 13% respectively over the previous quarter and the same time last year. At the same time, the iron ore inventories at the Chinese ports dropped by 3% relative to the same time last year. According to a report issued by the S&amp;P Global, investors expect China to launch more incentive plans to help the Chinese steel industry after the closing of “Fourteenth Five-Year Plan” meeting in October and this is expected to provide support for iron ore prices. From the supply side, the normalisation of Brazilian exports of iron ore could take longer, as Brazil is still struggling with the outbreak of COVID-19.&nbsp; These policies would continue to benefit IRC in FY2020 and beyond as the inherent demand for 65% grade iron ore remains high. In&nbsp; October 2020,&nbsp; the&nbsp; price&nbsp; premium&nbsp; for&nbsp; the&nbsp; 65%&nbsp; iron&nbsp; ore&nbsp; over&nbsp; the&nbsp; 62%&nbsp; iron&nbsp; ore&nbsp; amounted&nbsp; to&nbsp; US$12&nbsp; per&nbsp; ton&nbsp; and&nbsp; the&nbsp; forward&nbsp; curves&nbsp; of&nbsp; iron&nbsp; ore&nbsp; prices&nbsp; suggest&nbsp; that the price premium will increase further in FY2021 to an expected US$17 per ton.
For further details and financial model, please see our attached Trading Update Report.
&nbsp;

IRC [1029_HK]: 12% Production Growth, 6.7x P/E, Strong Iron Ore Prices - Trading Update

Irc Ltd

IRC [1029_HK]: 12% Production Growth, 6.7x P/E, Strong Iron Ore Prices - Trading Update