SINGAPORE (Sept 14): NRA Capital is upbeat on AsiaPhos’ phosphorous or P4 business as the company starts year-round production with first half performance showing promise of a possible turnaround this year.
“Our updated model factors in the expansion of the downstream business over time and values AsiaPhos at $187.9 million or $0.167 per share, yielding upside of 85%,” says analyst Liu Jinshu in a Wednesday report.
AsiaPhos reported net profit of $0.8 million in 2Q17, compared to $0.4 million in 2Q16. The downstream business was the star performer, selling 117.4% more phosphorous than a year ago or 5,000 tonnes in 2Q17.
According to Liu, growth was due to AsiaPhos’ initiatives to market to new customers and higher industrial demand. The company is selling P4 to customers in the electric vehicle (EV) and environmental protection sectors.
“We reckon that there is scope for the downstream business to expand given the robust demand,” says Liu, “Recently, the company has announced that it plans to construct a 20,000 tonnes per annum Sodium Hexametaphosphate (SHMP) plant over eight months at a cost of RMB 7 million ($1.4 million).”
Liu expects the plant to be completed in late 2018 and generate more than $30 million of revenue on full utilisation by 2021.
At present, demand for industrial phosphates is growing, driven by the environmental protection and electric vehicle (EV) sectors.
A 2014 survey indicates that about 20% of China’s arable land is contaminated and the government has stepped up monitoring and remediation efforts since 2016, spurring demand for phosphate compounds to treat contaminated soil.
The Chinese government also aims to grow the number of EVs on its road to 5 million by 2020 from 1 million today This has in turn spurred demand for Lithium Iron Phosphate (LiFePO4) batteries commonly used in China’s EV models.
AsiaPhos has announced that it will be splitting its assets and operations between the upstream and downstream businesses. Upon completion of the restructuring, AsiaPhos will wholly-own a Hong Kong subsidiary that will in turn wholly-own a PRC subsidiary that houses the downstream business.
“We reckon that this restructuring will allow AsiaPhos to take advantage of a larger variety of M&A and fund-raising opportunities,” says Liu.
Shares in AsiaPhos are trading at 9.3 cents or 40.5 times 2017 earnings of 0.23 cents per share.
