China Tracker - Details for Andatee China Marine Fuel (AMCF)

 Andatee China Marine Fuel
 Analyst Coverage
2011-08-17Rodman & RenshawDowngradeMarket Performn/a
 

We are lowering our rating on AMCF from Market Outperform to Market Perform driven by 1) substantially lowered revenue and net income guidance for 2011 and 2) margin uncertainty as a result of crude oil volatility. The lowered guidance and expected margin pressure results in our 2011 financial projections reflecting an EPS decline of ~40% compared to 2010. Our attraction to AMCF was partly predicated on earnings growth potential in the story. As a smaller company we can understand that management may not have all the tools at their disposal to immediately take corrective measures. Though we anticipate that the company will remain profitable and continue establishing a brand presence for their blended marine fuels, we believe investors may remain on the sidelines until they see some tangible evidence of earnings growth being re-established. AMCF is currently trading at a P/E multiple of ~3.0x to our lowered 2011 EPS expectation of $0.57 (from $1.11). We are also delaying the introduction of our 2012 projections until we have better visibility into demand conditions.

2011-05-16Rodman & RenshawReiterationOutperform$7.00
 

At current levels AMCF is trading at P/E multiples of ~3.0x to our FY11 earnings estimates. This multiple is below the peer group. We are comfortable maintaining a $7.00 price target on AMCF, which translates into P/E multiple of ~6x to our earnings estimates for FY11, still implying a discount compared to ~18x multiples for its peer group listed in US, and ~14x for comparables listed in China.

2011-04-01Rodman & RenshawReiterationOutperform$7.00
 

At current levels AMCF is trading at P/E multiples of ~3.6x to our FY11 earnings estimates. This multiple is below the peer group. We are comfortable maintaining a $7.00 price target on AMCF, which translates into P/E multiple of ~6x to our earnings estimates for FY11, still implying a discount compared to ~13.5x multiples for its peer group listed in US, and ~22.2x for comparables listed in China. We believe this is a very reasonable multiple for an emerging company that has substantial growth opportunities ahead, a strong market position and a healthy balance sheet. Historically energy distribution companies have traded within a range of 11x to 20x on a P/E basis.

2010-11-15Rodman & RenshawReiterationOutperform$7.00
 

AMCF reported 3Q10 revenue and net income of $57.5 MM and $2.6 MM, with diluted EPS of $0.27, beating our estimates of $32.3 MM, $1.7 MM, and $0.18, respectively. Top-line grew by 78.5% Y-o-Y from $32.2 MM in 3Q09 and 30.4% sequentially from $44.1 MM in 2Q10, largely driven by an 82% Y-o-Y increase in total shipment volume. Gross profit reached $5.8 MM or 10.0% in gross margin, compared to $3.8 MM or 11.7% in 3Q09 and $5.3 MM or 12.0% in 2Q10. Net income grew by 73.5% to $2.6 MM from $1.5 MM in 3Q09. AMCF ended the quarter with a total of $17.2 MM in cash, $3.9 MM of accounts receivable, and $13.5 MM of inventory with total debt of $27.2 MM. The company generated $5.5 MM in operating cash flow, compared to ($0.1 MM) in 3Q09.

Top-Line Growth Driven By Higher Volume And ASP: AMCF experienced strong growth in both shipment volume and selling price during the quarter. Total volume sold reached 86,000 tons, a Y-o-Y growth of 82% from 47,000 tons in 3Q09. The company has made progress in marketing 1# fuel products through new distributors in the South. Additionally the two acquisitions, Mashan and Hailong, contributed ~6,000 tons of shipment volume in 3Q10. ASP also drove the top-line higher, due to the price increase in international crude oil from ~$59/barrel in 3Q09 to ~$79/barrel.

Retail Sales Should Play A Larger Role: For the 9-month period of 2010, retail business contributed ~38.3% of total revenue, compared to 40.8% in 2009. Normally retail business generates a higher gross margin than wholesale distribution, and could potentially reduce the overall risk from volatility in crude oil price. The company plans to expand the retail business in the next three years through (1) acquiring retail facilities close enough to its end markets (2) building retail sales branches in strategically important locations to create a higher brand awareness, and eventually increase its revenue contribution to ~60% of total sales.

M&A Strategy Intact: We continue to believe that China's marine fuel market is highly fragmented, representing a tremendous opportunity for AMCF to become market consolidator. The company is likely to continue to gain market shares through acquiring smaller players with similar core expertise.

Financial Projections: For 4Q10, we expect the company to deliver revenue and net income of $47.7 MM and $2.1 MM, with diluted EPS of $0.21. This implies full year FY10 revenue, net income, and EPS of $179.1 MM, $8.8 MM, and $0.94. For FY11, our estimates are $210.7 MM, $10.1 MM, and $1.04, respectively.

Valuation: At current levels AMCF is trading at P/E multiples of ~6.2x and ~5.6x to our FY10 and FY11 earnings estimates. These multiples are below the peer group. We are comfortable assigning AMCF a $7.00 price target, which translates into P/E multiple of ~7.5x and ~6.8x to our earnings estimates for FY10 and FY11. 

2010-08-30Rodman & RenshawInitiationOutperform$7.00
 

At current levels AMCF is trading at P/E multiples of ~4.2x and ~3.7x to our FY10 and FY11 earnings estimates. These multiples are below the peer group. We are comfortable assigning AMCF a $7.00 price target, which translates into P/E multiples of ~7.3x and ~6.3x to our earnings estimates for FY10 and FY11, still implying a discount compared to ~16x and ~15x multiples for its peer group listed in US, and 12x and 10x for comparables listed in China.

AMCF
Oil & Gas
SCORE
5
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SAFETY/RISK SCORE
MODERATE RISK
DETAILS: Safety/Risk Model for AMCF
Current Price:  n/a
F10k Day (2010-01-26): -100.00%$5.77
2010 Close: -100.00%$5.50
2011 Close: -100.00%$3.17
High (2012-04-12): -100.00%$3.10
Low (2012-10-19): -100.00%$0.86
Exchange:
Market Capitalization: n/a
Total Shares: 9.82 mill
Float: n/a
Avg Volume: 21.20 k
Short Interest: 22.10 k
Short Ratio: 0.53%1.0 d
Last Quarter: 2010-12-31
Revenue (MRQ): 44.26 mill
Net Income (MRQ): 2.29 mill
Op. Cash Flow (MRQ): 1.57 mill
all financial data provided without warranty