Credit Suisse note on KiOR (KIOR)
Successful Plant Startup Significantly Derisks Stock; Reiterate Outperform
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Bottom Line: This morning, KiOR announced the successful startup of its
first large scale commercial plant in Columbus that converts non-food wood
biomass to hydrocarbon fuels using a proprietary thermochemical
technology. The technology has been successfully scaled 50x from the
demo unit and is producing oil that meets specifications, which significantly
derisks the equity story in our view, with the attention now shifting to
execution as the optimization process aims to increases the plant throughput
and yield. We reiterate our Outperform rating and $25/share Target Price.
Successful startup at Columbus: KiOR announced that its first plant has
started producing on-spec oils and is on track to produce 500,000 to 1
million gallons in 4Q2012. Additionally, management provided color on the
near-term pricing discounts of $0.50-$1.00 (vs. prior comments of $1.25-
$1.50), which are expected to be reduced to be on par with traditional fuels.
Yield & throughput improvements enhance value: (i) KiOR announced
their new catalyst platform can reduce coke production, which increases
throughput by 25% without additional capex; this improvement exceeds the
prior target of 20% improvement and equates to increased returns
commensurate with a 15 gallon/ton yield improvement. (ii) Additionally,
yields are now expected to be 72 gallons/ton at Natchez, compared to prior
67 gallon/ton levels, with continued improvement expected as R&D efforts
steadily progress towards the target of 92 gallons/ton (~116 is the theoretical
max). (iii) The second plant in Natchez remains on track for construction to
commence early in 2013 following a capital raise, with production expected
by late 2014.
Estimates: We maintain our EPS estimates as the story remains firmly on
track. Our $25 Price Target is based on a scenario-based DCF analysis. |
