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$716 million/US$93 million market cap; HK$5.1 million total average daily value traded] reported strong revenue growth with both robust operating and financial performance for the first half of the year ended June 2020 ahead of our expectations. The company’s revenues increased by 19% YoY for the first half of FY2020 to US$106 mn, in comparison to US$89 mn for the first half of FY2019 inclusive of the impact of hedging. &nbsp;A ramp up in production to an average of 89% of its capacity in the first half of FY2020, as compared to 78% of its capacity in the first half of FY2019, and an increase in volume of sales by 11.4% to 1.38mn tons in 1HFY2020 from 1.24mn tons in 1HFY2019 contributed to the increase in revenues for the company. The production volume increased by 14.3% to 1.4mn tons in 1HFY2020 attributable to the increased output from the K&amp;S mine.&nbsp; Key highlights of the first half were:
<ul type="disc">
<li>Revenue up 19% YoY to US$106.2 mn, Production up 14.3%, Volume up 11.4%, Production capacity utilization at 89% (30 June 2019: 78%)</li>
<li>Cash cost down 4.7% YoY to US$48.8/ton (30 June 2019: US$51.2/ton) due to economies of scale and Russian Rouble depreciation against the US dollar</li>
<li>EBITDA up 151% YoY to US$33.2 mn (30 June 2019: US$13.2 mn) and Maiden Profit of US$5.9 mn (30 June 2019: loss of US$25.2 mn) driven by higher production volume, strong iron ore price, and favorable foreign exchange movements</li>
<li>Decline in weighted average interest rate to approximately 7.6% (30 June 2019:&nbsp; 9.7%) per annum</li>
<li>Robust Iron Ore pricing up 7.6% YoY due to an increased demand from China and restricted supply from major iron producers</li>
<li>Net cash generated from operations up 55% to US$20.3 mn (30 June 2019: US$13.1 mn), mainly due to the improved performance of the K&amp;S mine</li>
</ul>
The improved sales volume was mainly responsible for the EBITDA growth of 152% to US$33.3 mn in 1HFY2020 as compared to US$13.2 mn in 1HFY2019. The average capacity utilization for 1HFY2020 was 89% while in July and early part of August 2020 it operated at more than 90% of its capacity. &nbsp;
The company reported an underlying profit of US$5.7 mn in 1HFY2020 in comparison to a net loss of US$8.2 mn in 1HFY2019 as the company reported a gain in foreign exchange during the first half of FY2020. Without considering the provision of US$5 mn [non-cash] in deferred contract payment expenses the company would have reported a net profit of US$10.7 mn. The company believes that this provision made for this expense will not be payable as far as the legal matter is concerned, but it is being prudent and complying with the accrual accounting requirements. The financial expenses of US$13.3 mn were slightly higher due to higher loan guarantee fees in the first half of FY2020. The company paid the loan principal and interest amount in full and terminated the ICBC Facility Agreement in the year 2019. With most of the ramp up in production to full capacity and with an expectation of further reduction in cash cost levels, the company is expected to continue posting positive EPS in 1HFY2020 and beyond.&nbsp;
The company reported cash costs of US$48.8 per ton in 1HFY2020 as compared to US$51.2 per ton in 1HFY2019, which is lower by 4.7%, helped in part by the depreciation of the Russian Rouble. 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 to the tune of up to US$5 per ton thereby allowing the company to possibly reach cash costs levels of US$43 to US$45 per ton. The company’s income is mainly denominated in US Dollars and remains unaffected by the weakness of Rouble, but the operating costs which are mostly denominated in Roubles make an impact on the EBITDA.
HK$0.15 PT; 50% 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 50% over the current stock price of HK$0.10. 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 mn. At the current levels, the stock is trading at extremely attractive multiples of just 7.5x P/E and 4.2x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Option to Upgrade Capacity
As the company is approaching 100% capacity utilization it is assessing an option to upgrade the phase I production facility to increase the production capacity to about 4.6 mn tons per annum (existing 3.2 mn tons per annum) with a capital expenditure requirement of about US$50 mn. The total capacity that has been designed for phase I and phase II combined stands at 6.3 mn tons per annum which indicates there is room for expansion even if full utilization is achieved on the 4.6 mn tons capacity. The increase in capacity will allow the revenue growth momentum to continue for the next few years as well.
For further details and financial model, please see our attached Earnings Update Report.

IRC [1029_HK; HK$716 million/US$93 million market cap; HK$5.1 million total average daily value traded] reported strong revenue growth with both robust operating and financial performance for the first half of the year ended June 2020 ahead of our expectations. The company’s revenues increased by 19% YoY for the first half of FY2020 to US$106 mn, in comparison to US$89 mn for the first half of FY2019 inclusive of the impact of hedging. &nbsp;A ramp up in production to an average of 89% of its capacity in the first half of FY2020, as compared to 78% of its capacity in the first half of FY2019, and an increase in volume of sales by 11.4% to 1.38mn tons in 1HFY2020 from 1.24mn tons in 1HFY2019 contributed to the increase in revenues for the company. The production volume increased by 14.3% to 1.4mn tons in 1HFY2020 attributable to the increased output from the K&amp;S mine.&nbsp; Key highlights of the first half were:

Revenue up 19% YoY to US$106.2 mn, Production up 14.3%, Volume up 11.4%, Production capacity utilization at 89% (30 June 2019: 78%)
Cash cost down 4.7% YoY to US$48.8/ton (30 June 2019: US$51.2/ton) due to economies of scale and Russian Rouble depreciation against the US dollar
EBITDA up 151% YoY to US$33.2 mn (30 June 2019: US$13.2 mn) and Maiden Profit of US$5.9 mn (30 June 2019: loss of US$25.2 mn) driven by higher production volume, strong iron ore price, and favorable foreign exchange movements
Decline in weighted average interest rate to approximately 7.6% (30 June 2019:&nbsp; 9.7%) per annum
Robust Iron Ore pricing up 7.6% YoY due to an increased demand from China and restricted supply from major iron producers
Net cash generated from operations up 55% to US$20.3 mn (30 June 2019: US$13.1 mn), mainly due to the improved performance of the K&amp;S mine

The improved sales volume was mainly responsible for the EBITDA growth of 152% to US$33.3 mn in 1HFY2020 as compared to US$13.2 mn in 1HFY2019. The average capacity utilization for 1HFY2020 was 89% while in July and early part of August 2020 it operated at more than 90% of its capacity. &nbsp;
The company reported an underlying profit of US$5.7 mn in 1HFY2020 in comparison to a net loss of US$8.2 mn in 1HFY2019 as the company reported a gain in foreign exchange during the first half of FY2020. Without considering the provision of US$5 mn [non-cash] in deferred contract payment expenses the company would have reported a net profit of US$10.7 mn. The company believes that this provision made for this expense will not be payable as far as the legal matter is concerned, but it is being prudent and complying with the accrual accounting requirements. The financial expenses of US$13.3 mn were slightly higher due to higher loan guarantee fees in the first half of FY2020. The company paid the loan principal and interest amount in full and terminated the ICBC Facility Agreement in the year 2019. With most of the ramp up in production to full capacity and with an expectation of further reduction in cash cost levels, the company is expected to continue posting positive EPS in 1HFY2020 and beyond.&nbsp;
The company reported cash costs of US$48.8 per ton in 1HFY2020 as compared to US$51.2 per ton in 1HFY2019, which is lower by 4.7%, helped in part by the depreciation of the Russian Rouble. 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 to the tune of up to US$5 per ton thereby allowing the company to possibly reach cash costs levels of US$43 to US$45 per ton. The company’s income is mainly denominated in US Dollars and remains unaffected by the weakness of Rouble, but the operating costs which are mostly denominated in Roubles make an impact on the EBITDA.
HK$0.15 PT; 50% 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 50% over the current stock price of HK$0.10. 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 mn. At the current levels, the stock is trading at extremely attractive multiples of just 7.5x P/E and 4.2x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.
Option to Upgrade Capacity
As the company is approaching 100% capacity utilization it is assessing an option to upgrade the phase I production facility to increase the production capacity to about 4.6 mn tons per annum (existing 3.2 mn tons per annum) with a capital expenditure requirement of about US$50 mn. The total capacity that has been designed for phase I and phase II combined stands at 6.3 mn tons per annum which indicates there is room for expansion even if full utilization is achieved on the 4.6 mn tons capacity. The increase in capacity will allow the revenue growth momentum to continue for the next few years as well.
For further details and financial model, please see our attached Earnings Update Report.

IRC [1029_HK]: +19% Sales & Strong Profit Growth, 7x P/E - Earnings Update

Irc Ltd

IRC [1029_HK]: +19% Sales & Strong Profit Growth, 7x P/E - Earnings Update