Glen: Thanks for taking the time to write up an excellent summary of references and inputs from different sources including your own.
I see you took my original base model and tweaked it a little to come up with a consistent set of 3-tier estimates (low, realistic, high) for each of the years discussed.
Since much time has gone by since my original post, allow me to describe here some of my current thoughts on the topic:
a) my base model was posted on Apr 22, 2010 (after some preliminary attempts back in March based on discussions with you and GGorilla) and thus didnt take into account newer events and results that have been made public since. It was even prior to the release of Q1/2010 results. So some of the info and reasoning seems outdated since I didnt have the knowledge we now have. Based on the information available at that time about the new 100MM scrap contract and the supply contracts, we had higher expectations of how the year would shape up. In the mean time, we know that no delivery of recycled scrap was made in Q1 and at best 1 or 2 was made in (or can be booked to) Q2. Also we are now in July and havent heard yet of any new contracts for both the recycling and reselling business. So I think we have to scale back our expectations a little. Frankly, all I want to see now is that the company meets its 2010 rev guidance of 220M. That by itself is a meaningful achievement to me. If they beat that guidance, it's even better.
b) I came to the realization that a FD of 16.97M for the year is probably an overkill, even with the most recent 500K shares issued to the Hean ChaoYiang owner. Since the company reported a FD of 12.08M for Q1/2010, I think a FD of 15.5M (and 16.5M) should be an adequate assumption for the year (and for 2011).
c) I also realize that this is their first year as a scrap metal recycler and there is a learning curve for every startup. So we cannot expect a high effiency from their recycling biz. Even if they are 3 to 4 months behind schedule and incur a lower margin than industry average this year, so what? Main thing they emerge next year and the following years as a strong player in this new, lucrative and expanding business while having put every thing in place this year for what they need for future growth : financial and technical resources, modern expandable facilities, adequate supply and demand, management and marketing skills...
So, I am currently expecting in the mid-range for 2010 (barring some real BIG contracts later this year WOWSER...):
rev = 220M (say 100M recycling biz plus 120M distribution biz)
NI = 100M x 0.07 + 120M x 0.06 = 7M + 7.2M = 14.2M
FD = 15.5M
eps = 0.92E
Likewise, my current mid-range expectation for 2011 based on the previous model (again barring any major expansion/dilution):
assume a reduced price of $400/ton of recycled metal (based on current trends) and 90% capacity on the recycling side and a 20% rev growth on the distribution side:
rev = 360M (recycling) + 144M (distribution) = 504M
NI = 360M x 0.08 + 144M x 0.06 = 28.8M + 8.6 = 37.4M
FD = 16.5M
eps = 2.27E
Btw, here is a reply to Glen's post (by Mawsii1) I found today on the Yahoo board that is worth of note in this context:
Fairly good analysis, however, months back the pricing per Metric ton for HMS 1 -2 80/20 in china was around 400. Pricing has been dropping worldwide for this material. Also, the plant start up has been behind schedule, and the training of employees for processing has taken some time. They have hired more, up to 67 employees now, and should be working daily to increase production rates. This is dirty, heavy, dangerous stuff. Material must be cut to maximum sizes width by height, by thickness for the steel plants to accept. That said, I was told that everything for at least 2 yrs would stay within the country vs export due to such demand. So, bottom line is the revenue can grow as much as production capabilities..Not many companies can say this..Commodity contracts can also be 25 -50 and even 100 million dollar fulfillment. Usually it's a large contract over the period of 6-12 months..We should be seeing something on this soon..Your net profit estimate I would agree with vs the low 12 million figure the co put out earlier this yr.
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