Thank you cdvdkopykat for the upgrade details RINO
This is a copy of the e-mail I received. The actualy report is several pages long and can't be pasted here. If you want, you can sign up for e-mail alerts at RINO's website. ________________________________________________
RINO International Corp. (RINO : NASDAQ): BOT contracts could potentially transform the FGD business; reiterate BUY, US$34 target price
· BOT contracts could potentially transform the FGD business; reiterate BUY, US$34 target price
CONTACT: Michael Deng, research analyst 1.403.508.3804
Event RINO announced a $118 million BOT (build-operate-transfer) contract with Shougang, one of the top steel producers in China. Under the contract, RINO will build two FGD units for Shougang, operate them for 10 years and then transfer the facilities to the customer. RINO will receive annual cash compensation during the term of the contract.
Impact Positive. These are the largest FGD units built by RINO to date, for a top tier steel producer, demonstrating RINO's technical strength. More importantly, the BOT contract provides RINO with additional operating revenue, stable recurring cash flow, and favourable returns. We estimate the unlevered IRR of the 10-year contract is about 25-30%. RINO indicated that steel companies are increasingly interested in BOT contracts. We believe this business model will bring positive transformation to the FGD business if RINO can successfully manage the higher operational risks and working capital investments.
Valuation Our forecasts remain unchanged because we expect RINO to record the sale of the systems in 2010, while the operating revenue from this one contract is not material. RINO is trading at 13.9x 2010E EPS versus the average of 18.4x for its North American peer group.
Action We reiterate BUY rating and $34.00 target price, based on 20x fully taxed 2010E EPS of $1.70. Our target multiple is slightly above the sector average P/E, as we believe RINO's growth and profitability are will be depressed this year due to capacity constraints.