Company Update: Fortress Minerals Ltd. (FMIL SP/ OAJ.SI)
Company Update: 28 October 2024
China stimuli to support iron ore prices.
- Stable margins. Fortress Mineral reported a better gross profit margin of 68.8% in 1H25, despite a drop in revenue YoY. Net profit margin also improved to 27.1% in 1H25, compared to 23.2% in 1H24. The increase in margins showcased the company’s efforts to improve the operational efficiency of its business.
New crushing plant to be commissioned in FY26
The company is expanding its production capacity at the Bukit Besi mine with the ongoing construction of a new, more advanced crushing plant. This facility will feature state-of-the-art equipment and technology, strategically designed to support scalable future operations. The plant will be larger and relocated to optimize operational efficiency, reduce costs, minimize manpower needs, and indirectly boost production. It is expected to be commissioned in FY2026.
1H25 results update
The company reported a revenue of US$25.3mn in 1H25, down 17.3% YoY, compared to US$30.6mn in 1H24. Gross profit margin improved to 61.7% as the company benefit from economies of scales on higher and better production capabilities, lowering its average unit cost. Net profit margin also improved to 27.1% in 1H25, compared to 23.2% in 1H24. Sales volume saw a 13.3% decrease to 271.2 thousand DMT in 1H25, compared to 312.9 thousand DWT in 1H24, as the company cut on sales volume and stockpile its processed iron ore at its mine amidst weaker iron pricings. The company aims to clear these stockpiles when iron ore prices display more strength.
Valuation & Action
We maintain an OUTPERFORM recommendation and an unchanged TP at S$0.40, based on a blended valuation, using discounted cash flow (DCF) with a terminal growth rate of 2% and a WACC of 8.8%, as well as a comparable multiples valuation, using an industry EV/Resource multiple of 3.6x.
Fortress Minerals’ ability to generate cash flow to fund its future expansion plans put it at a competitive advantage over its peers. The company also has a strong balance sheet, maintaining a good cash position and debt level. Cash Ratio is at 0.51x and current ratio is at 1.68x. Unit cost is expected to decline going forward as the company reap more economies of scale. We remain upbeat about the company’s short-term growth strategies and long-term growth potential.
Risks
Iron ore prices are the key driver of the company’s profitability. Despite a recent rally in Iron ore prices, prices shall resume a downtrend if China’s manufacturing and construction activities remain in a downturn amidst ineffective monetary and fiscal policy support. A potential global recession is another headwind for iron ore prices
