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$426 million/US$55 million market cap; HK$0.5 million total average daily value traded] reported strong revenue growth with strong operating performance for the year ended December 2019. &nbsp;The company’s revenues increased by 17% YoY for year ended FY2019 to US$177.2 mn, in comparison to US$151.5 mn for the year ended FY2018. &nbsp;This increase of 17% in revenues includes the impact of hedging, excluding which, the revenues would have increased by 31% to US$200.4 mn.&nbsp; A ramp up in production to an average of 81% of its capacity in FY2019, as compared to 70% of its capacity in the FY2018, and an increase in volume of sales by 10.8% to 2.46mn tons in FY2019 from 2.22mn tons in FY2018 contributed to the increase in revenues for the company. &nbsp;The production volume increased by 15.3% to 2.57mn tons in FY2019 attributable to the debottlenecking in the railway lines in the region near the K&amp;S mine and clearing up of issues related to the drying unit, contract mining and maintenance works.&nbsp; The need for the drying unit as part of the production process generally reduces with warmer weather. &nbsp;
The improved sales volume was mainly responsible for the EBITDA growth (excluding hedging losses) of 39.2% to US$33.3 mn in FY2019 as compared to US$24 mn in FY2018. &nbsp;The average capacity utilization for FY2019 was 81% while currently in March 2020 it is operating at 95% of its capacity. &nbsp;During our conversations with management they mentioned that the current capacity utilization, 95% in March 2020, is on track to operate at close to 100% of its capacity in 2020. &nbsp;
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.&nbsp; 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. &nbsp;The increase in capacity will allow the revenue growth momentum to continue for the next few years as well.
The company has decided against any form of hedging in iron ore till the market remains in backwardation. &nbsp;According to the CEO, “The earnings of resources companies like IRC are generally less predictable by nature given that they are mostly driven by the commodity price, which they usually have little control over. To address&nbsp; this&nbsp; issue,&nbsp; as&nbsp; part&nbsp; of&nbsp; the&nbsp; ongoing&nbsp; hedging&nbsp; program&nbsp; for&nbsp; risk&nbsp; management&nbsp; purposes,&nbsp; IRC&nbsp; entered&nbsp; into various hedging contracts to reduce the risks of adverse iron ore price movements”.
The company reported cash costs of US$51.4 per ton in FY2019 as compared to US$50.2 per ton in FY2018, which is higher by 2.4%, helped by the depreciation of the Russian Rouble and below the general inflation rate of approximately 3.1% in Russia during the same period. &nbsp;The K&amp;S mine is not yet operating at full production capacity and the cash cost has not yet reached its optimal level. &nbsp;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. &nbsp;In addition to this, commencement of operations of the Amur River Bridge would also reduce cash costs to the tune of US$5 per ton thereby allowing the company to reach cash costs levels of US$43 to US$45 per ton. &nbsp;Also, with the depreciation of the Russian Rouble against the USD to lowest levels in more than 4 years, the company is planning to lock it in at current levels with the help of hedging to further minimize cash costs per ton. &nbsp;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.&nbsp;
The company reported a net loss of -US$38.67 mn in FY2019 in comparison to a net profit of US$68.23 mn in FY2018 adjusted for the hedging losses during the year. &nbsp;Without considering the hedging losses of US$23.3 mn the company reported a net loss of –US$15.37 mn. &nbsp;This loss was on account of higher depreciation charge of US$7.3 mn, mainly resulting from the reversal of asset impairments at the end of 2018 and higher financial expenses of US$7.3 mn mainly due to higher interest rates of the loan from Gazprombank and higher loan guarantee fee. The company paid the loan principal and interest amount in full and terminated the ICBC Facility Agreement in the year 2019. &nbsp;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 well within reach of achieving positive EPS in FY2020.
HK$0.15 PT; 150% Upside
In view of the ramp up in production from the K&amp;S mine to full capacity along with reduction in cash costs of upto 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 150% over the current stock price of HK$0.06.&nbsp; Our price target implies a P/E multiple of 12x on our FY2021 EPS estimate of US$0.10 cents and an EV/ EBITDA multiple of 5X on our FY2021 EBITDA estimate of US$61.2 mn.&nbsp; At the current levels, the stock is trading at extremely attractive multiples of just 5x P/E and 4x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.

IRC [1029_HK; HK$426 million/US$55 million market cap; HK$0.5 million total average daily value traded] reported strong revenue growth with strong operating performance for the year ended December 2019. &nbsp;The company’s revenues increased by 17% YoY for year ended FY2019 to US$177.2 mn, in comparison to US$151.5 mn for the year ended FY2018. &nbsp;This increase of 17% in revenues includes the impact of hedging, excluding which, the revenues would have increased by 31% to US$200.4 mn.&nbsp; A ramp up in production to an average of 81% of its capacity in FY2019, as compared to 70% of its capacity in the FY2018, and an increase in volume of sales by 10.8% to 2.46mn tons in FY2019 from 2.22mn tons in FY2018 contributed to the increase in revenues for the company. &nbsp;The production volume increased by 15.3% to 2.57mn tons in FY2019 attributable to the debottlenecking in the railway lines in the region near the K&amp;S mine and clearing up of issues related to the drying unit, contract mining and maintenance works.&nbsp; The need for the drying unit as part of the production process generally reduces with warmer weather. &nbsp;
The improved sales volume was mainly responsible for the EBITDA growth (excluding hedging losses) of 39.2% to US$33.3 mn in FY2019 as compared to US$24 mn in FY2018. &nbsp;The average capacity utilization for FY2019 was 81% while currently in March 2020 it is operating at 95% of its capacity. &nbsp;During our conversations with management they mentioned that the current capacity utilization, 95% in March 2020, is on track to operate at close to 100% of its capacity in 2020. &nbsp;
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.&nbsp; 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. &nbsp;The increase in capacity will allow the revenue growth momentum to continue for the next few years as well.
The company has decided against any form of hedging in iron ore till the market remains in backwardation. &nbsp;According to the CEO, “The earnings of resources companies like IRC are generally less predictable by nature given that they are mostly driven by the commodity price, which they usually have little control over. To address&nbsp; this&nbsp; issue,&nbsp; as&nbsp; part&nbsp; of&nbsp; the&nbsp; ongoing&nbsp; hedging&nbsp; program&nbsp; for&nbsp; risk&nbsp; management&nbsp; purposes,&nbsp; IRC&nbsp; entered&nbsp; into various hedging contracts to reduce the risks of adverse iron ore price movements”.
The company reported cash costs of US$51.4 per ton in FY2019 as compared to US$50.2 per ton in FY2018, which is higher by 2.4%, helped by the depreciation of the Russian Rouble and below the general inflation rate of approximately 3.1% in Russia during the same period. &nbsp;The K&amp;S mine is not yet operating at full production capacity and the cash cost has not yet reached its optimal level. &nbsp;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. &nbsp;In addition to this, commencement of operations of the Amur River Bridge would also reduce cash costs to the tune of US$5 per ton thereby allowing the company to reach cash costs levels of US$43 to US$45 per ton. &nbsp;Also, with the depreciation of the Russian Rouble against the USD to lowest levels in more than 4 years, the company is planning to lock it in at current levels with the help of hedging to further minimize cash costs per ton. &nbsp;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.&nbsp;
The company reported a net loss of -US$38.67 mn in FY2019 in comparison to a net profit of US$68.23 mn in FY2018 adjusted for the hedging losses during the year. &nbsp;Without considering the hedging losses of US$23.3 mn the company reported a net loss of –US$15.37 mn. &nbsp;This loss was on account of higher depreciation charge of US$7.3 mn, mainly resulting from the reversal of asset impairments at the end of 2018 and higher financial expenses of US$7.3 mn mainly due to higher interest rates of the loan from Gazprombank and higher loan guarantee fee. The company paid the loan principal and interest amount in full and terminated the ICBC Facility Agreement in the year 2019. &nbsp;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 well within reach of achieving positive EPS in FY2020.
HK$0.15 PT; 150% Upside
In view of the ramp up in production from the K&amp;S mine to full capacity along with reduction in cash costs of upto 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 150% over the current stock price of HK$0.06.&nbsp; Our price target implies a P/E multiple of 12x on our FY2021 EPS estimate of US$0.10 cents and an EV/ EBITDA multiple of 5X on our FY2021 EBITDA estimate of US$61.2 mn.&nbsp; At the current levels, the stock is trading at extremely attractive multiples of just 5x P/E and 4x EV/EBITDA based on our FY2021 EPS and EBITDA estimates, respectively.

IRC [1029_HK]: 95% Utilization, 5x P/E - Earnings Update Report

Irc Ltd

IRC [1029_HK]: 95% Utilization, 5x P/E - Earnings Update Report