Share Price S$0.735
Target Price S$1.00
Anticipating A Stronger 2H13
• BUY recommendation; target price of S$1.00 based on a peer average PE of 10x applied to our 2014F EPS estimate of 9.9 S cents.
• Expect 1H13 to be weak; earnings to pick up in 2H13. We foresee 1H13 earnings to comprise less than 50% of our full-year forecast on the back of ongoing renovation works in Halcyon Agri Corp’s (HACL) Indonesian factories, flooding in Feb 13 and farmers’ low rubber tapping activity. We anticipate a pick-up in 2H13 as South Indonesia enters its peak production season and natural rubber (NR) prices recover, reviving rubber tapping activity. The benchmark NR price (SICOM TSR20*) has rebounded from a ytd low of US$2,159/tonne on 10 July to US$2,359.
• Stretching to optimal midstream capacity. HACL is set to more than triple its processing capacity from 102,880 tonnes to 332,880 tonnes by 2015 through an acquisition and internal asset enhancement. We conservatively forecast this will boost its earnings to US$30m by 2015, which translates to a 3-year (2012-15) CAGR of 44%. The RM63m-deal to buy two NR processing facilities in Ipoh, Malaysia from Chip Lam Seng Sdn Bhd is targeted to be completed by 4Q13. Further to this,
management is seeking opportunities to expand upstream for its next stage of growth.
• Robust risk management allows HACL to protect against gross profit erosion and NR price volatility. In a typical cycle, HACL buys the amount of raw materials needed at least one month in advance of delivery preparations. Purchase cost of raw materials and selling price for processed NR are locked in on the same day, allowing HACL to peg prices to the current market rate. The US dollar/Rupiah rate is also fixed simultaneously. This approach allows the group to consistently secure its target gross material profit of at least US$350/tonne.
• Beefing up leadership and expertise with two key appointments in 2013. HACL engaged Mr Kevan Richard Mitchell as Business Development Manager in Feb 13. He brings close to 25 years of NR industry experience with his last appointment being Trading Manager at Sri Trang International Pte Ltd. Mr James Bugansky was appointed Senior Technical Advisor in May 13. Under a consulting agreement, his responsibilities include analysing, maintaining and improving HACL’s technical resources in its factories, as well as in potential mid and upstream acquisitions. He previously held senior technical positions with The Goodyear Tire & Rubber Company, PT Bridgestone Sumatra and GMG Global Ltd.
Source/Extract/Excerpts/来源/转贴/摘录: UOB Kay Hian research for
Publish date: 26/07/13