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HK-Listed Agritrade Resources Preparing For Next Phase Of Growth

NRA Capital
Updated

This is an excerpt from NRA Capital’s research report on Agritrade Resources Limited.

Read the full report here and know more about NRA Capital’s premium subscription service here. Pricing starts at as low as $0.75/day depending on your subscription period.

By Liu Jinshu

Headquartered in Singapore, Agritrade Resources (Agritrade) is a coal mining, shipping, and energy conglomerate listed on the Hong Kong Stock Exchange. The company caught the attention of market watchers after it reported net earnings growth of 81.4 percent to HK$424.4 million in FY18. Revenue soared 55 percent to HK$2.2 billion to propel the bottom line.

According to research house NRA Capital, the group could ramp up output by another 0.5 million tonnes to 6.2 million tonnes of coal in FY19. This will come through from the installation of new capacity of 2.5 million tonnes, taking into account of some gestation period before achieving full utilisation.

NRA Capital projects that coal revenue could surge 23 percent to HK$2.4 billion in the current fiscal year, based on higher coal selling price indicated by the group’s 6,426 kcal/kg MERGE mine and the higher prices achieved in 2H18. In addition, some of the latest contracts secured suggest a 30 percent increase in selling prices, compared to that achieved in FY18.

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Agritrade operates three mines in Indonesia and MERGE mine is expected to be scaled up in FY19. Last year, MERGE contributed HK$52.4 million in operating profit, with an output of just 0.5 million tonnes. As per 2015 technical report of MERGE mine, the production schedule was to ramp up output to 6 million tonnes per year, suggesting significant room for growth.

That said, key risks to a resource mining business such as Agritrade are any downward correction of coal prices, site conditions, weather and mine design. Nonetheless, the group’s operations are backed by its strong balance sheet, with net borrowings at just 6.7 percent of common equity in FY18. NRA Capital is pending review of the group’s mine plans and issued a target price of HK$1.93 per share on Agritrade. The target price indicates a potential upside of 37.9 percent, based on the recent trading price of HK$1.40.

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