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.

Equity Bottom-up Research

Equity Bottom-Up

Shougang Fushan Resources / Equity Bottom-Up

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<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

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<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> ended H1 FY24 with over 10.5 bn HKD of net cash and investments, compared to 12.7 bn HKD of market capitalization. </li>
<li>At 1600 RMB/ton coking coal prices (current spot price), the business will be able to generate 1.1 bn HKD of profits, with an 80% payout implying a 7% dividend yield. </li>
<li>The current spot prices are 16% below the average five-year price of 1900 RMB/ton ( yield 10%), and at these prices, the company still makes an EBITDA margin of 40-45%. </li>
</ul>



Shougang Fushan Resources (639 HK) ended H1 FY24 with over 10.5 bn HKD of net cash and investments, compared to 12.7 bn HKD of market capitalization. 
At 1600 RMB/ton coking coal prices (current spot price), the business will be able to generate 1.1 bn HKD of profits, with an 80% payout implying a 7% dividend yield. 
The current spot prices are 16% below the average five-year price of 1900 RMB/ton ( yield 10%), and at these prices, the company still makes an EBITDA margin of 40-45%. 


Shougang Fushan Resources (639 HK): Cash 83% of Market Cap, 11% Trailing Dividend Yield

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<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 a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).</li>
<li>At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.</li>
<li>With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).</li>
</ul>



Shougang Fushan Resources (639 HK) is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).
At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.
With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).


Fushan Energy (639 HK): Coking Coal Prices To Strengthen With Anglo Accident

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<a href="https://www.smartkarma.com/entities/mount-gibson-iron-ltd" target="_blank" data-smartkarma-citation="entities:19043:1" rel="noopener">Mount Gibson Iron (MGX AU)</a> is a pure play on iron ore trading at 0.5x EV-EBITDA, with 77% of the market capitalization in cash in H1 FY24 (likely to grow).</li>
<li>The company is about to announce reinstating its dividend, and a 50% payout could result in a yield of 20% on the current share price. </li>
<li>The company's main catalyst is its earnings release in August, after which a board meeting will decide on future dividends (which it has already committed to shareholders). </li>
</ul>



Mount Gibson Iron (MGX AU) is a pure play on iron ore trading at 0.5x EV-EBITDA, with 77% of the market capitalization in cash in H1 FY24 (likely to grow).
The company is about to announce reinstating its dividend, and a 50% payout could result in a yield of 20% on the current share price. 
The company's main catalyst is its earnings release in August, after which a board meeting will decide on future dividends (which it has already committed to shareholders). 


Mount Gibson (MGX AU): Iron Ore Pure Play, 77% of the Mkt Cap in Cash, 0.5x EV-EBITDA With Catalysts

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<li>The pivot in capital allocation plans of <a href="https://www.smartkarma.com/entities/whitehaven-coal-ltd" target="_blank" data-smartkarma-citation="entities:14253:1" rel="noopener">Whitehaven Coal (WHC AU)</a> by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. </li>
<li>We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. </li>
<li>We prefer names that keep their capital allocation plans consistent, e.g., <a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a>, and would take money off the table here.</li>
</ul>


The pivot in capital allocation plans of Whitehaven Coal (WHC AU) by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. 
We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. 
We prefer names that keep their capital allocation plans consistent, e.g., Indo Tambangraya Megah (ITMG IJ), and would take money off the table here.


Whitehaven Coal Suspension of Buyback: A Negative Despite Rising Coal Price/ Potential Acquisition

Hong Kong

Shougang Fushan Resources Group Ltd. produces and sells coking coal products and side products in China. The Company is principally engaged in mining of coking coal and production and sales of raw and clean coking coal,

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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