Hi-Green Carbon Ltd.
A recent SME IPO that caught my eye because of impressive ROE figures being reported (60%+ in screener).
RHP - https://www.higreencarbon.com/images/prospectus/RHP%20-%20Hi%20Green%20Carbon%20Limited.pdf
The company is in space of recycling tyres through pyrolysis, that yield recovered carbon black (used by tyre companies), steel (from the wires in tyres), fuel oil and sodium silicate. All of the products from pyrolysis can be sold to other industries, with minimal environmental impact.
Now, pyrolysis alone is inefficient. Company supposedly has a patented process that is more efficient.
Currently, the company has a plant capable of processing 100 TPD of waste tyres. Annual capacity declared in RHP is lower at 24000 TPA, presumably due to maintenance requirements, and capacity utilisation is even lower at ~ 16500 TPA for FY2023, implying around 70% capacity utilisation in previous financial year. Revenue breakdown by the product is given in the RHP - fuel oil is responsible for a large part of the revenue, in contrast to the expectation that recovered carbon black is more valuable.
At current valuation of around 400cr, with TTM sales of around 80cr and TTM profit of 12cr, the company is certain not cheap with revenue multiple of 5x and earnings multiple of 35x. Becomes viable as a long-term growth story, if this company will keep reinvesting profits back into operations for increased capacity. All this, is assuming a 10 year view, where the revenue projections can vary wildly (500 cr annual revenue in 10 years is possible given the market size, but requires execution capability and management quality to get there). The market valuations will follow if the revenue and profit continues on the upward trajectory. However, looking at the current valuation and expansion plans of the company, it is definitely overvalued.
RHP - https://www.higreencarbon.com/images/prospectus/RHP%20-%20Hi%20Green%20Carbon%20Limited.pdf
The company is in space of recycling tyres through pyrolysis, that yield recovered carbon black (used by tyre companies), steel (from the wires in tyres), fuel oil and sodium silicate. All of the products from pyrolysis can be sold to other industries, with minimal environmental impact.
Now, pyrolysis alone is inefficient. Company supposedly has a patented process that is more efficient.
Currently, the company has a plant capable of processing 100 TPD of waste tyres. Annual capacity declared in RHP is lower at 24000 TPA, presumably due to maintenance requirements, and capacity utilisation is even lower at ~ 16500 TPA for FY2023, implying around 70% capacity utilisation in previous financial year. Revenue breakdown by the product is given in the RHP - fuel oil is responsible for a large part of the revenue, in contrast to the expectation that recovered carbon black is more valuable.
At current valuation of around 400cr, with TTM sales of around 80cr and TTM profit of 12cr, the company is certain not cheap with revenue multiple of 5x and earnings multiple of 35x. Becomes viable as a long-term growth story, if this company will keep reinvesting profits back into operations for increased capacity. All this, is assuming a 10 year view, where the revenue projections can vary wildly (500 cr annual revenue in 10 years is possible given the market size, but requires execution capability and management quality to get there). The market valuations will follow if the revenue and profit continues on the upward trajectory. However, looking at the current valuation and expansion plans of the company, it is definitely overvalued.
