I own a few shares but am trying to get a handle on the proper valuation given the uncertainty.
Where is the value in this stock? Anyone have a good valuation? It seems that the main investment thesis is centered on them achieving a small percentage of the container floor market.
In their recent 10-Q, it says that their near term goal is "... expectations of 60,000 - 80,000 TEU for fiscal 2010" which is 2% of the expected total new build volume.
and that this requires a capital investment of " 8 – 10 million USD." to build the manufacturing facility in Asia.
I don't know what price or what margins they are going to ask for but I would guess that their floors can't sell for more than say $300/TEU. Apitong is about $200/TEU. Maybe they will have a 15% gross margin or $40/TEU in gross profit. That seems quite optimistic. At 80,000 TEU/year, that is $3.2MM/year in gross profit. Say $1MM/year in operating expenses and that is $2.2MM/year pretax. Over 5-year, that is $11MM and $10MM after paying pack $1MM of debt and maybe $7MM after tax. Discounting this to the present gives a NPV of about $5. But they need to raise $8-10MM of capital to build manufacturing so this would not be a profitable enterprise.
In other words, even if they reach their near term goal, they won't create any value. They would have to increase sales considerably or stay in business much longer. For example, lets try a very, very optimistic scenario. Lets say the total container build bounces back to 4 million TEU per year and they get 10% of the new builds. That is 400,000 TEU/year or $16MM/year in gross profits. Lets say their operating cost are now $3MM/year so they make about $9MM/year Net income. Now over 10 years this is $90MM or maybe $60MM NPV and $40-50MM after the $10MM capital cost.
Ok, now a NPV (after capital cost) of $40-50MM looks attractive given a $12MM market cap but this is a very optimistic scenario. We don't even have any orders yet let alone 10% of the market and the market may not bounce back quickly.
It seems to me that this doesn't look that attractive on a risk/reward basis.
Am I missing something? Given the risks involved, I would expect such an optimistic outcome to give me at least a 10x appreciation potential. Why invest in this stock and why now?
