bdsec monthly report january 2011
TRANSCRIPT
BDSec Monthly Market Recap January 2011 Institutional Clients Department © 2011 BDSec Joint Stock Company Tel: (976) 11 323 411, (976) 9901 3089 Email: [email protected], [email protected] Web: www.bdsec.mn
New Year New Rally: Mongolian Stocks Heading For A Historic Bull Market
BDSec Monthly Market Recap (January 2011)
Mongolian stock market, represented by BDS and MSE top 20 indexes that include blue chip stocks trading on the Mongolia Stock Exchange (MSE) went up more than 60% on average within a month’s time since the start of 2011, giving investors an encouraging start to the new year. Both indexes hit all time high while most of the coal stocks doubled their value during the impressive rally as positive outlook and supportive government policies are suggesting another favorable year in 2011 for Mongolian economy.
Daily trading volume was increased by 7.5% compared to the previous month from USD 197,000 to USD 214,000 while the total stock market capitalization reached 1.8 billion USD as of January 31st, climbing over 60% in 4 weeks for the first time in history, but it’s still less than 20% of the GDP.
Led by Baganuur (BAN), Sharyn Gol (SHG) and Tavan Tolgoi (TTL), MSE‐listed coals stocks were major play during last January. Within a month, they gained 96.9% on average which is enough to demonstrate how quickly the Mongolian coal sector is growing at the moment. The domestic coal production was almost doubled in 2010 from 13 million tons to 25 million tons with most of them exported to China and it’s estimated that the amount will reach 40 million tons by 2015, however, it would still be unable to supply more than 2% of Chinese annual coal consumption, which is also expected to grow 18% in the next 5 years. Mongolia’s biggest coal project is called “Tavan Tolgoi” or 5 hills which has been drawing
Calculated by BDSec, BDS index is capitalization based index shows the performance of MSE‐listed stocks
BDSec Monthly Market Recap January 2011 Institutional Clients Department © 2011 BDSec Joint Stock Company Tel: (976) 11 323 411, (976) 9901 3089 Email: [email protected], [email protected] Web: www.bdsec.mn
global investment community’s attention for a while now. The 6 billion tons of untapped coking coal reserve is 100% owned by the Mongolian government through its holding company, Erdenes‐Tavan Tolgoi that plans to sell its 29% on the international stock exchanges after distributing its 10% to Mongolian citizens for free and another 10% to Mongolian business entities at par value.
The government, which looks to remain with 51%, is currently choosing a partner in the proposed Erdenes‐Tavan Tolgoi’s IPO among 16 multinational investment banks including Morgan Stanley, BOA, JP Morgan and ING which officially submitted their interest. Despite the potential international listing, this IPO will bring a lot of changes to the domestic stock market as the company’s 20% is likely to be offered through the Mongolia Stock Exchange. It would easily increase the current stock market capitalization for several times if the estimated market capitalization of the company, 20 to 30 billion USD is a realistic valuation. Not just on the valuation side, the IPO would also help the market to gain much needed liquidity as well as infrastructure developments such as custodian issues which would eventually attract many other local companies to be listed domestically.
Another coal giant, Baganuur (BAN) is one of several companies that would follow Erdenes‐Tavan Tolgoi’s footsteps in the nearest future. This company is already on the privatization list which is approved by the parliament and now it’s up to the government, which has 75% of interest in Baganuur, how and when to arrange the privatization. Mr. James Passin, a manager of Firebird Management LLC and a board member of Baganuur, said at the company’s shareholders meeting that “we believe that Baganuur will be able to increase its market valuation significantly and become a well known coal miner in the world by improving its corporate governance and transparency.” Firebird owns 20% of Baganuur and it also controls the other coal supplier, Sharyn Gol (SHG).
The above figure shows the growth of MSE‐listed coal stocks in January by percentage change
BDSec Monthly Market Recap January 2011 Institutional Clients Department © 2011 BDSec Joint Stock Company Tel: (976) 11 323 411, (976) 9901 3089 Email: [email protected], [email protected] Web: www.bdsec.mn
Sharyn Gol has a track record that the rest of the coal companies should simply look at. It was an ordinary coal producer based in northern Mongolia during the last decade. Like other coal mines, the company was government owned supplying state‐run power stations with thermal coal and losing money due to high extraction costs and low energy prices. Then it has fully privatized by the government selling all of its interest to a private company and later it was bought by Firebird. Since the arrival of new owners, the company’s corporate governance has significantly increased with the management team added by independent and highly experienced people and the company’s financials checked by international auditors. Also the company has completed additional drilling activities in order to confirm its coal reserve by international standards. As a result, the company’s market value has grown by 579% within a year.
With coal stocks being the market leader, there were consumer stocks such as APU (↑85.8%), Talkh Chikher (↑75.8%), Makhimpex (↑69.4%), Darkhan Nekhii (↑61.2%) and Atar Urguu (↑61.1%) emerged as significant contributors to the rally which looks likely to remain in February as proxy season approaches.
All public companies listed on Mongolia Stock Exchange (MSE) will have to hold their annual general meeting before May 1st in order to announce their year‐end financials and dividends for 2010 to shareholders, according to the law. The strong economic results of the last year could persuade them to pay nice dividends this year, especially those which have shown decent performances during 2010. Cashmere producer, Gobi (GOV) and beverage manufacturer, APU (APU), two of the several companies that investors expecting good dividends had seen their net profit well doubled in 2010. Unlike coal, cashmere is quite luxury business but Mongolian cashmere has its own characteristics and reputation. The harsh winter, when temperature drops below 30 to 40 degrees celsius, only allows goats with best cashmere to survive and Gobi capitalizes on what’s considered as the best raw material in the world. Not only doubling earnings, the company has also increased its production capacity by 4 times in 2010 by investing in capital expenditure and plans to expand that number by 60% in 2011. In the meantime, coking coal miner Tavan Tolgoi (TTL) /not to be confused with Erdenes‐Tavan Tolgoi/, the highest dividend payer of last year, is expected to release big dividend news.
Cheering Economic Outlook for the Capital Markets
For the year 2010, Mongolian economy recovered well from the previous year’s negative results thanks to booming mining sector which still follows tremendous opportunities for other businesses. Coal and iron ore industries have shown the fastest growth amongst the sector while global commodities prices stayed healthy for the economy. Likewise, there were a number of positive impacts supporting the economy throughout the last year. For example, banks have started lending money again following the financial crisis, the country’s borrowing rate has increased by international rating agencies, FDI flow has continued to grow up and Mongolia based and local companies have raised enormous amount of
Top Dividend Payers of 2010 (by dividend yield) Tavan Tolgoi ‐‐‐‐‐‐ 28.3% APU ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 2.9% Talkh Chikher ‐‐‐‐‐‐ 2.5% Ulaanbaatar ‐‐‐‐‐‐‐‐ 1.3% Bayangol Hot ‐‐‐‐‐‐‐ 1.2%
BDSec Monthly Market Recap January 2011 Institutional Clients Department © 2011 BDSec Joint Stock Company Tel: (976) 11 323 411, (976) 9901 3089 Email: [email protected], [email protected] Web: www.bdsec.mn
money (close to 2 billion USD) from overseas markets. As a result, Mongolia is expecting to have 6.1% of GDP growth for the year 2010, and international financial organizations such as IMF are confident of seeing double‐digit growth numbers in the next couple of years.
Mongolian government owns a number of high profile mineral deposits such as copper, uranium, coal, iron ore, gold, zinc, silver and phosphorite that are considered as strategically important and the combined value of these government owned mineral deposits could easily exceed few trillion US dollars based on current value of each mineral. The government has recently started utilizing these deposits with the help of international partners. Oyu Tolgoi, khown as the world’s largest untapped copper‐gold deposit is currently being developed by Ivanhoe Mines and Rio Tinto which have finalized the investment agreement with the government in 2009, and now Erdenest ‐Tavan Tolgoi is the next high profile mining project awaiting kick off.
Real GDP growth: Forecast by NDRC of Mongolia Growth by Sectors: Source NSO
BDSec Monthly Market Recap January 2011 Institutional Clients Department © 2011 BDSec Joint Stock Company Tel: (976) 11 323 411, (976) 9901 3089 Email: [email protected], [email protected] Web: www.bdsec.mn
APPENDIX: WEEKLY STATISTICS FROM FEB 14th THROUGH FEB 28th, 2011
Equity Indices Value 1‐Wk Chg 1‐Wk Chg % MSE Top 20 27,592.1 29,383.1 6.49 BDS Index 6,509.9 6,783.3 4.20 BDS IPO Index 232.4 248.7 7.01
Market Statistics
Week 06
Week 07 Change % Market Cap (Bn MNT) 2,783.5 2,976.3 6.93 Daily Average Turnover (Mio MNT)
246.5 248.8 0.95
Top 5 Gainers Closing Change % Gutal (GTL) 8,467 101.07 Suu (SUU) 43,344 52.08 Ulaanbaatar Hotel (ULN) 48,240 51.51 Makh Impex (MMX) 4,232 41.07
Tavantolgoi (TTL) 1 400,000 40.70 Top 5 Losers Closing Change % Baganuur (BAN) 28,828 ‐17.40 Gobi (GOV) 6,011 ‐12.88 Telecom Mongolia (MCH) 3,500 ‐10.26 Apu (APU) 3,100 ‐8.82
Olloo (OLL) 160 ‐5.33 Top 5 High Value Closing Value Tavan Tolgoi (TTL) 1,400.000 350,021,185 Sharyn Gol (SHG) 25,360 298,865,810 Baganuur (BAN) 28,828 222,906,041 Makh Impex (MMX) 4,232 95,662,620 Shivee Ovoo (SHV) 40,000 85,801,059 Top 5 Large (Billion MNT) Closing Market Cap Tavan Tolgoi (TTL) 1,400,000 737.31 Baganuur (BAN) 28,828 604.65 Shivee Ovoo (SHV) 40,000 536.76 Apu (APU) 3,100 230.29 Sharyn Gol (SHG) 25,360 183.39
List of standard stocks (Closing as of February 18)
Closing PER P/B APU 3,100 28.5 7.2
Atar Urguu 33,349 7.2 1.2
Baganuur 28,828 ‐66.3 ‐36.3
Bayangol Hotel 31,700 5.5 0.8
BDSec 3,800 ‐89.5 8.5
Buligaar Mon‐It 10,500 ‐ ‐
Darkhan Nekhii 10,000 ‐21.7 2.3
Eermel 6,468 45.9 1.6
Genco Tour Bureau 101 44.6 1.0
Gobi 6,011 31.2 1.9
Gutal 8,467 52.2 3.0
HB Oil 205 ‐16.5 2.4
Khukh Gan 170 ‐40.8 1.8
Makhimpex 4,232 595.0 ‐1,111.7
Material Impex 3,000 21.4 4.2
Mongol Knitter 3,003 1,028.7 5.3
Moninjbar 150 188.9 1.4
Naco Fuel 317 ‐161.6 4.2
Olloo 160 N/A 2.0
Sharyn Gol 25,360 833.9 121.1
State Dept. Store 750 101.0 5.4
Suu 43,344 2.8 1.5
Tavan Tolgoi 1,400,000 17.3 9.9
Takhi Co 4,324 17.1 4.1
Talkh Chikher 15,386 14.3 6.2
Telecom Mongolia 3,500 32.6 3.1
Ulaanbaatar Hotel 48,240 19.2 2.1