Company Update: 2 December 2025
Resetting the Strip and Pushing Out Growth
- Reset of our iron ore assumptions. We take a structurally softer IODEX CFR North China outlook for 2026 to 2030, which feeds directly into lower average selling prices for Fortress despite ongoing volume growth at Bukit Besi. The second anchor is timing. We push out the meaningful contribution from the Mengapur project to around FY2027, so the near-term story is primarily about defending margins rather than delivering a step change in output.
Rethinking The Cyclical Nature Of IODEX
Management has highlighted weaker benchmark prices as the key reason for the FY2025 ASP of US$88.88 per DMT, but our work also points to a steady erosion in price realisation. Fortress used to command a premium to the benchmark with ASP to IODEX realisation at roughly 110 %, but this has compressed towards about 80 % in recent quarters. We acknowledge that part of this is cycle driven. Even so, we forecast only a partial normalisation and assume an 83% realisation factor over the forecast period. That is still well below the historical peak and caps margin recovery even if the benchmark stabilises.
2Q26 Results Update
The company reported 2Q FY26 revenue of US$16.5m, up 6.4 % year on year, driven by an 8.6 % increase in iron ore concentrate sales to 190,066 DMT. The group continued to benefit from strong domestic offtake demand, supported by multiyear supply agreements with Malaysian steel mills. However, the average realised selling price slipped to US$86.3 per DMT from US$88.5 a year ago, tracking weaker iron ore benchmarks and a lower realisation factor against IODEX. Gross profit declined 11.8 % year on year to US$9.1m, with gross margin contracting to about 55 % as higher stripping costs, inflation in operating inputs and startup costs from capacity upgrades offset scale benefits. Other income also normalised from a high base. As a result, profit before tax fell 52.5 % year on year to US$2.9m and profit after tax dropped 56.7 % to US$2.0m. On a first half basis, revenue grew 28.2 % to US$32.4m on strong volume growth, but net profit for the period was still down 35.1 % as margins compressed. The balance sheet remains in a net cash position, which provides flexibility to continue funding expansion at Bukit Besi and the Mengapur pilot plant.
Valuation & Action
On valuation, our refreshed DCF comes in at S$0.21 per share while our EV per resource framework, after cutting the multiple from 3.8 times to 2.8 times, supports a higher value of S$0.32 per share. A simple 50-50 blend of these two approaches gives a new fair value of S$0.27. This implies a relatively modest upside (+17.5% with dividends) from current levels and still warrants an overweight call in our view. Hence, we maintain our OUTPERFORM recommendation but lower our target price (TP) to S$0.27.
