Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

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Equity Bottom-Up

Shougang Fushan Resources / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> is back to interesting levels after a correction in HK/China and now trades at 4.5x PE/1.3x EV-EBITDA FY22e and a dividend yield of 17%. </li>
<li>With &gt;50% of the market capitalization in cash (accounting for the dividend liability), there is an excellent margin of safety in the name.</li>
<li>A further correction of coking coal prices by 20% from these levels to 1700-1800 RMB/ton would still have the stock trading at a &gt;10% dividend yield. </li>
</ul>



Shougang Fushan Resources (639 HK) is back to interesting levels after a correction in HK/China and now trades at 4.5x PE/1.3x EV-EBITDA FY22e and a dividend yield of 17%. 
With &gt;50% of the market capitalization in cash (accounting for the dividend liability), there is an excellent margin of safety in the name.
A further correction of coking coal prices by 20% from these levels to 1700-1800 RMB/ton would still have the stock trading at a &gt;10% dividend yield. 


Fushan Energy: Back to Interesting Levels

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK) </a>is in deep value territory with coking prices averaging over 2600 RMB/ton for the year ( Vs. last years average of 2000 RMB/ton)</li>
<li>The stock trades at 2.6x PE, 0.8x EV-EBITDA with a 22% dividend yield at current spot prices of 2950 RMB/ton, making this an extremely cheap value play. </li>
<li>Further buffer is provided by net cash of 6.7 bn HKD, representing 44% of the market capitalization. Fushan can trade up to 3.50 HKD (20% upside) in the near term.</li>
</ul>



Shougang Fushan Resources (639 HK) is in deep value territory with coking prices averaging over 2600 RMB/ton for the year ( Vs. last years average of 2000 RMB/ton)
The stock trades at 2.6x PE, 0.8x EV-EBITDA with a 22% dividend yield at current spot prices of 2950 RMB/ton, making this an extremely cheap value play. 
Further buffer is provided by net cash of 6.7 bn HKD, representing 44% of the market capitalization. Fushan can trade up to 3.50 HKD (20% upside) in the near term.


<a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a> has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider <a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> in his insight yesterday <a href="https://www.smartkarma.com/insights/msci-may-21-index-rebalance-preview-review-period-is-a-wrap" target="_blank" data-smartkarma-citation="insights:50978" rel="noopener">MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap</a>. We would take this opportunity to sell into strength.
There is better value for money in owning <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a>, which I have written about in my insight <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>. Trading at 2.5x EV-EBITDA with a 10% dividend yield <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> offers way more stability and margin of safety to <a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a>.

Perennial Energy Holdings Ltd (2798 HK) has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider Brian Freitas in his insight yesterday MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap. We would take this opportunity to sell into strength.
There is better value for money in owning Shougang Fushan Resources (639 HK), which I have written about in my insight Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside. Trading at 2.5x EV-EBITDA with a 10% dividend yield Shougang Fushan Resources (639 HK) offers way more stability and margin of safety to Perennial Energy Holdings Ltd (2798 HK).

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

In our previous insight on <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a>, <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>, we highlighted the stock as a good pure play on coking coal with :<ul>
<li>More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.</li>
<li>FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.</li>
<li>The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. </li>
</ul>We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> in the short-term.

In our previous insight on Shougang Fushan Resources (639 HK), Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside, we highlighted the stock as a good pure play on coking coal with :
More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.
FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.
The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. 
We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit Shougang Fushan Resources (639 HK) in the short-term.

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> is a deep value pure play on coking coal.  The broad thesis of investing in this name is:
<ul>
<li>
The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.</li>
<li>
54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).</li>
<li>
It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). </li>
<li>
The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. </li>
</ul>
We think that Chinese coking coal prices have their downside capped as :
<ul>
<li>Chinese pig iron production remains elevated.</li>
<li>Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.</li>
<li>China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.</li>
</ul>
At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:
<ol>
<li>
Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.</li>
<li>
Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. </li>
</ol>

Shougang Fushan Resources (639 HK) is a deep value pure play on coking coal.  The broad thesis of investing in this name is:


The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.

54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).

It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). 

The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. 

We think that Chinese coking coal prices have their downside capped as :

Chinese pig iron production remains elevated.
Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.
China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.

At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:


Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.

Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. 


Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Hong Kong

Shougang Fushan Resources is an investment holding company primarily engaged in the mining, production, and sale of coking coal products, including premium hard coking coal and semi-hard coking coal. It operates three coking coal mines in Liulin County, Shanxi Province, China. The company is headquartered in Hong Kong and was founded in 1985.

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Shougang Fushan Resources (639 HK)

Fushan Energy: Back to Interesting Levels

Shougang Fushan Resources (639 HK) is back to interesting levels after a correction in HK/China and now trades at 4.5x PE/1.3x EV-EBITDA FY22e and...

Sameer Taneja

Fushan Resources: Swimming in Cash

Shougang Fushan at a 4.6x PE and 1.6x EV-EBITDA with a dividend yield of 17%, assuming a 2,500 RMB/ton coking coal price ( Vs. the current 2,950...

Sameer Taneja

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Fushan Energy: Back to Interesting Levels

Shougang Fushan Resources (639 HK) is back to interesting levels after a correction in HK/China and now trades at 4.5x PE/1.3x EV-EBITDA FY22e and...

Sameer Taneja

Fushan Resources: Swimming in Cash

Shougang Fushan at a 4.6x PE and 1.6x EV-EBITDA with a dividend yield of 17%, assuming a 2,500 RMB/ton coking coal price ( Vs. the current 2,950...

Sameer Taneja

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

Fushan is a pure-play on increasing Chinese domestic coking coal prices. With over 45% of the market capitalization in cash and an 8.5% dividend...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja