Share Price S$0.765
Target Price S$1.00
9M13 Results: Looking To A Solid Year-End Finish
• Average gross material profit (GMP) of US$413/tonne in 9M13 on sales volume of 55,822 tonnes (+8% yoy). Despite the continued volatility in natural rubber (NR) prices, Halcyon Agri (HACL) managed to achieve a very strong GMP of US$449/tonne in 3Q13 on the back of improved supply of raw materials after a first half that was affected by flooding and low rubber tapping activity.
• Higher operating expenses of US$2m (+51% yoy) as HACL gears up for expansion. About 80% of this increase was due to: a) higher staff costs as it builds up management teams that will eventually be deployed to its target factories, b) professional fees paid for recurring due diligence and quality checks, and c) higher depreciation expense.
•Adjusted net profit of US$8m represents 73% of our full-year forecast. We expect another solid performance in 4Q13 on the back of a committed volume of 26,575 tonnes for the rest of the year. This brings total contracted volume for 2013 to over 82,000 tonnes, +23% yoy.
•Stocking up in inventory for a seasonally weak 4Q13 led to higher working capital usage of US$7m-8m in 3Q13. HACL now has about onemonth’s worth of raw material (7,800 tonnes) in its warehouse. Working capital facilities remained sufficient and as of end-Sep 13. HACL has over US$30m cash, mainly from the IPO and placement proceeds, to be used to fund its M&As.
• Consistent and steady 2013… As it enters a seasonally weak final quarter, we expect its GMP to fall but still remain above US$350/tonne. Management is confident it will meet its committed volume of 26,575 tonnes in 4Q13. Its foresight to build up inventory early reflects positively on its operational discipline.
• …and eyes an exciting 2014. We look ahead to a huge jump in HACL’s midstream capacity. The successful completion of M&As before year-end is a potential near-term catalyst. Should all go according to plan, the group’s output and earnings could double in 2014 with an entry into the Malaysian market.
• Strategic upstream expansion with the acquisition of 6,500ha of cultivable land also expected to be completed in 4Q13. A NR plantation will be developed to yield top-quality raw material. We are excited by the potential margin expansion for HACL when this land is fully matured.
• Maintain BUY and target price of S$1.00, based on a peer-average PE of 10x applied to our 2014F EPS of 9.9 S cents.
Publish date: 24/10/13