Share Price S$0.725
Target Price S$1.00
1H13 Results: Within Expectations
• Maintain BUY and 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.
• Weak 1H13 as expected due to renovation works in Halcyon Agri Corp’s (HACL) Indonesian factories, flooding in Feb 13 and farmers’ low rubber tapping activity. Revenue fell 14.4% yoy to US$104.1m due to lower natural rubber (NR) prices. Gross profit is lower by only 5.7% yoy to US$9.5m on a healthy gross material profit (GMP) of US$395 per tone and higher sales volume of 36,459 tonnes (+10% yoy).
• Higher operating expenses of US$3.9m (+68% yoy) as HACL gears up for its expansion. Majority of this is attributable to higher personnel expense in preparation for its acquisition of Malaysian factories.
• Adjusted net profit of US$4.5m represents 38.5% of our full-year forecast. We expect earnings to pick-up in 2H13 as HACL delivers on higher committed volume of 43,960 tonnes and as NR prices trade in a steadier range. We also expect GMP to remain stable for the rest of 2013.
• Sufficient working capital, healthy cash balance of US$29m post HACL’s placement exercise. Existing banking facilities of US$73.5m is currently adequate to support HACL’s business. While working capital requirements may grow as production volume increases, we do not think this will pose difficulties for HACL as the group has good relationships with its existing bankers Standard Chartered Bank and CIMB Bank.
• Anticipate a stronger 2H13 for HACL to achieve our full-year forecast of US$11.9m in earnings. Besides the 43,960 tonnes committed for 2H13, HACL also has options to deliver 5,776 tonnes more, which would bring the group to achieve an optimal utilisation of close to 85% of its annual capacity.
• Excellent execution of risk management model is attested by its healthy GMP of US$395 per tonne in 1H13, above our estimate of US$382 per tonne. Management is confident they will be able to maintain this GMP level at least until 3Q13.
• Midstream capacity expansion on track with the acquisition of two Malaysian processing facilities from Chip Lam Seng Sdn Bhd expected to be completed in 4Q13. Utilisation of these factories is targeted to ramp up to 50% in 2014, which translates to a potential addition of 90,000 tonnes to HACL’s delivery volume. The expansion of its existing Indonesian facilities is also on-time and on-budget. This will add another 50,000 tonnes in capacity in 2015.
Publish date: 16/08/13