Price (02 Jan 14, S$) 0.80
Target price (S$) 1.10¹
Tapping into rubber growth
■ Initiating coverage with OUTPERFORM. We initiate coverage of Halcyon Agri with an OUTPERFORM rating and target price of S$1.10. We believe there is a 38% share price upside driven by significant capacity growth and supported by increasing demand in the global tyre market, which should drive earnings CAGR of 60% over 2013-16E.
■ Resilient business model. Halcyon is a midstream player in the natural rubber supply chain involved in the production of processed natural rubber for leading global tyre manufacturers. Its unique business model allows the company to maintain a stable annual Gross Material Profit (GMP) per tonne of US$350-400 despite fluctuations in natural rubber prices. In addition, close to 75% of volumes are sold through long-term sales contracts.
■ Capacity expansion to drive earnings growth. Through the expansion of its existing facilities and proposed acquisitions in Malaysia and Indonesia, we expect sales volume to increase from 80,000t in 2013 to 305,000t in 2016. With GMP/tonne expected to stay above US$350, we forecast net profit to quadruple from US$10 mn in 2013E to US$41 mn in 2016E. In the medium term, rubber demand is likely to be supported by steady growth in the Chinese tyre market and a recovery in the North American tyre market. Our analysis of the top 10 tyre manufacturers globally indicates that aggregate revenue is likely to grow by 5% and 6% in 2014 and 2015, respectively.
■ Valuation attractive. Halcyon currently trades at a 2014E P/E of 9.4x and 2015E P/E of 6.5x, a significant discount to global tyre manufacturers and commodity traders despite its greater earnings visibility. Our S$1.10 target price is based on a 2015E P/E of 9.0x, in line with its peers. In our view, the successful execution of its planned capacity growth would drive re-rating. Key risks include dependence on raw materials from several large suppliers and significant revenue contribution from its top five customers.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse