Australia | Mar 05 2007
By Chris Shaw
The Chinese market may or may not be to blame for the current weakness in equity markets globally, but with an economy expected to continue expanding at around 10% into the foreseeable future it remains an attractive business destination for a number of companies.
The latest to enter the Chinese market is bio-fuel minnow Mission Biofuels (MBT), which today announced production and off-take agreements with two Chinese companies that should see it generating revenues by July this year.
The company has been establishing a 100,000 tonne per annum bio-diesel refinery in Malaysia, the site being attractive as it gives the company a cost advantage over its competitors in Europe.
It also appears to be an attractive enough location to interest the Chinese, as the group has signed a memorandum of understanding with East River Energy Resources and Science Technology (ER) that will see ER commission a 50,000 tonne per annum bio-diesel manufacturing facility near Shanghai. Mission will produce at the facility, the fuel to then be sold into the growing Chinese market.
Management expects the deal will generate up to $16m in revenues in the first year, which should equate to EBITDA (earnings before interest, tax, depreciation and amortisation) of $2.4m. To put this in perspective, group revenues for the half year to December 31st were around $650,000.
The production agreement is for 24,000 tonnes annually to start with, but the company sees potential for a further 50,000 tonnes to be added to capacity within 9 months. Management plans to increase throughput to around 70,000 tonnes by 2008/09. The market appears well placed for solid growth, as consumption of around 82 million tonnes of diesel fuel in 2005 is expected to grow to around 110 million tonnes by 2010.
In a separate agreement the company has signed with Wuhan PetroChina Lubricant Co (Wuhan), which is part of the national oil company PetroChina, a put option for Mission to supply up to 2,000 tonnes per month of bio-diesel from the ER facility on a take or pay basis. This suggests the potential for additional revenues, which could make a significant impact on the company’s earnings outlook given there are only around 47 million shares on issue, which capitalises the company at a little under $50 million.
Given its size there is little coverage of the company in the broader market, the FNArena database showing none of the leading brokers and equity researchers it covers devote any time to the company. Shares in Mission are down 3c today at $1.01 in an overall depressed market. This compares to a trading range over the past 12 months of 94c-$1.88.
