RE: RE: RE: RE: RE: RE: RE: $ 395 000/T HPA price Very interesting discussion on HPA prices today. Thanks to everybody who contributed.
The mix of 4N and 5N in the expected sales is surely an interesting point to keep in mind and that will remain in the speculation box for now.
I looked back at the analysts reports that I have and here are the estimates for HPA that I found:
Mackie Research, July 12 2011 report: $200,000 / t
Jennings Capital, October 7 2011 report: $250,000 / t. Note: Jennings didn't apply any volume discount to get this price but rather used an average price per kilo based on different purity and grain size specifications using as a reference Skyspring Nanomaterials website.
Jacob Securities, November 23rd 2011 report, page 49: 2012 and 2013 : $350,000 / t; 2014 and 2015: $250,000 / t.
MPartners, April 6 2011 report: $300,000 / t.
These are all sell side analysts with firms involved in Orbite's financing so they are more likely to have higher estimates. But nobody is using $396,000 / t in their estimates. The fact that Orbite shows on their site that HPA sells for up to $396 / kilo doesn't say anything about their expected revenues and earnings from this side of the business. It does however leave a lot of room for speculation and plenty of rope for an investor to hang himself if he uses that up to per kilo price to estimate future earnings.
I do believe that Orbite HPA will be profitable, but they will have to give volume discounts and they might as well sell not only the most expensive of the HPA, but perhaps also the less expensive 99.99% on as they mention on their website that HPA means 99.99% and higher for them.
The real problem for an investor here is the wide range of possibilties this situation implies. At one extreme, they could sell everything for $17,500 / t and at the other one for $396,000 / t. Both scenarios are highly unlikely, but it takes a lot of work and guessing to come up with the appropriate estimates. IMO, management should clarify this and not let investor guess in what they are investing but rather provide all the information required for an investor to make an inform decision as it should be.
One last note. Sumitomo chemicals is the biggest HPA producer at this time with their 1,600 t / year production according to Jacobs. The company also plans to double production to 3,200 t/year by Q2 2012. I looked at Sumitomo financials statements to see if I could find information about the price they get for their HPA, but I haven't found that information. What I have found is that their HPA production is included in their Basic Chemicals division (see page 3): https://www.sumitomo-chem.co.jp/english/ir/library/annual_report/docs/AR2011e_08.pdf
If you look at the financial highlights for this division, you will see that it generated an operating income of 21.3 billion yens on sales of 248.5 billion yens. Globally, this division generated a profit of about 8.6% in 2010. This is a very small margin considering that estimates for cost of production for HPA range between $30k and $70k / t according to the different analysts reports. If we believe analysts, their margin should beetween 400% and 800% if they get $400k / t. So this would imply that other products sold by this division have very low margins.
We don't know however what pourcentage of that division's revenues comes from HPA versus other product. Should they get $400k / t for their HPA, 9 months of production (1,200 t) would generate $480 million in sales or 17% of $2.7 billion in sales for the 9 months ended 31 december 2011. https://www.sumitomo-chem.co.jp/english/newsreleases/docs/20120203e.pdf
It will be interesting to see how their revenues and profits for this division increase as they double production of HPA in Q2 of 2012. Unfortunately, we won't get these numbers before September at the earliest I believe.
GLTA
Ben