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JP Morgan targets $3.35!!!!!!!!!!!CHEONG AH!!!!!!
We factor in Changshu Everbright acquisition
numbers, as we believe there is a good chance that the company
will complete its acquisition for its remaining 64.55% stake in
Changshu Everbright for S$586MM (at an acquisition cost of
10.2x FY06 historical P/E and c.1.6x P/B) by end-August 2007.
into our?
Acquisition is earnings accretive from FY08E onwards:Taking into account Changshu Everbright in our earnings
forecasts and an increased share base (from 449.2MM to
789.1MM) as the acquisition is transaction via a share swap, we
lower our EPS forecasts by 36% for FY07 as we have only
factored four months of full earnings contribution from Changshu
Everbright. The acquisition is earnings accretive from FY08E
onwards, as we raise our EPS estimates by 8% and 20% in FY08-
09, respectively.
?
and Changshu Everbright?s plant facilities in Changshu, Shanghai.
The superstructure of Xinghai and Xingyu production plants were
almost completed and are expected to commence operations by
end-2007. The upgrading of 1- 150k tpa galvanized steel line has
also been completed and is expected to commence operations by
end-May 2007.
Plant expansion on track: Last week we visited FerroChina?s?
our Dec-07 PT to S$3.35 from S$2.50 based on DCF valuation
(we lower WACC from 11.0% to 10.3% and a terminal growth
rate of 1%). Key risks to our PT are: (1) susceptibility to steel and
zinc raw material fluctuations; (2) execution of its high-growth
strategy; and (3) leveraged financials.
Raise our PT to S$3.35. We reiterate OW on the stock and raiseshould hit target price of $2.90 by year end at the rate it is going......
Hi Asterisk,
Ok, let you know next time for the next result briefing. I can introduce you to one stock guru over there:)
Hi Asterisk,
The room for presentation is quite small. Maybe it is ok to just come in as they do not check. Let you know when is the next result as I am on their mailing list. I am not a major shareholder. I don't have millions of shares.*ha*.
When I go for such results briefing, I am trying to assess how long I should hold onto the shares. For this , it is going to a long long time:). I loaded up on the warrants last Wednesday:).
FerrooooooooooooCHINA!!
Hi Asterisk/Eastonbay
I am not a analyst. Yes, this is one of my counter and the other is Swissco(should have bought Swiber). The rest I have are vested with CPF.
Let me know if you wish to come and I can let the invetsor relations people know. It is good to go for such meetings. There is one stock guru there whom I can introduce to you. I basically go to assess how long I should hold onto this stock. Sometimes investor relations people can hint to you what stocks to buy:).I am convinced there is more upside to FerroChina.
I am feeling cold because FerroChina is now climbing up the high mountains at the Great Wall and temperature is low:)
FerroooooooooCHINA!!!!
I just attended FerroChina's result briefing today. FerroChina kicks off FY2007 with solid 72.9% rise in 1Q net profit! Some points to note :
- For 2007 and beyond, it aims to be a market consolidator of inefficient galvanizers in China at below replacement cost with payback period less than 2 years.
- By 2008, FerroChina will emerge as the leading global player in steel processing with an estimated capacity of 3.5 million tonnes.
FerroooooooooooCHINA!!!!!
Vision of Growth
FerroChina is one of China's leading players and growth companies in the steel
sector. It has a glowing track record, having achieved multi-fold annual increases
in revenues in recent years. What distinguishes this company from its peers is a
management team with the foresight to seize opportunities through an aggressive
expansion programme. Today, the Group and its associate command a significant
10-15% market share in the highly-fragmented steel industry, which attests to the
high quality and competitive prices of its products.
Multi-prong growth strategies to meet sustained growth in demand
has adopted an ambitious expansion plan to ride on the growing demand for
galvanised steel, which is underpinned by growing consumption in downstream
industries such as construction, automobile and home appliances manufacturing.
Increasing acceptance by overseas customers also bolsters demand for
FerroChina's products. Production capacity and revenue are forecast to grow
at a CAGR of 42% and 37% respectively in 2006-09. Earnings are expected to
grow at a CAGR of 50% in 2006-09.
. FerroChinaExtracting greater value from value chain.
(M&A), FerroChina aims to expand its capacity and geographical coverage to
achieve greater economies of scale, thereby becoming the biggest galvanised
steel player in China. Upstream expansion into cold roll production will give
access to feedstock for galvanised steel production and allow FerroChina to
extract greater value from the galvanised steel supply chain.
Through mergers and acquisitionsDeep discount to peers.
12.3x. Given FerroChina's higher growth rate and ROE, such a deep discount is
not justified. We assign a 2008 PE of 8x and a target price of S$2.35 to compensate
for FerroChina's aggressive expansion plan, leveraged balance sheet and
relatively short operating history. This is also supported by the our DCF valuation
of S$2.41(WACC: 13% and terminal growth: 1.5%). the progress of its capacity expansion. Initiate coverage
with BUY.
THIS IS EVEN BEFORE THE MERGER...
With the consolidation wave in the China steel sector,
FerroChina is looking for acquisitions to raise its galvanising capacity to 5m tonnes
over the next three to five years. The enlarged capacity would not only strengthen
FerroChina?s leading position in China but also propel FerroChina to become one of
the biggest galvanising steel manufacturers in the world.
Bigger entity deserves higher valuation.
market cap would increase from S$600m to more than S$1.2b. The enlarged entity is
bigger than that of its closest Taiwanese peers Yieh Phui and Sheng Yu. At S$2.05,
FerroChina?s current valuation is 6.4x 2008 PE vs 11-12x for its peers. The discount is
too steep even taking into account FerroChina?s shorter operating history and higher
gearing. Hence, we lift our valuation from 8x to 9x 2008 PE. Accordingly, we raise our
12-month target price to S$2.90 based on the higher EPS for 2008 and higher valuation
of 9x 2008 PE. Reiterate BUY.
Following the acquisition, FerroChina?sRisks to our target price
China steel sector including demand factors, fluctuating raw material prices, execution
risks associated with FerroChina?s capacity expansion, higher gearing
It is time to put on a jacket as the weather gets colder and it continues its journey up the high mountains from the Great Wall of China. Slowly but surely it will get to the top of the mountain.
FerrooooooooooooooooooooooooCHINA!!!!!!!!!!!!!!!