Halcyon Agri - Malaysian Entry Sealed (UOBKH)

Halcyon Agri Corp -
Share Price S$0.81
Target Price S$0.95
Malaysian Entry Sealed

WHAT’S NEW
• Halcyon Agri Corp (Halcyon) announced on 16 January the completion of the acquisition of two natural rubber (NR) processing factories in Ipoh, Malaysia together with all associated buildings, plant and machinery and four plots of land on which the assets are located and operated.

• Following the acquisition, CLS Sdn Bhd and its wholly-owned subsidiary Hevea CLS Sdn Bhd have become indirect wholly-owned subsidiaries of the company.


• Proceeds of US$14.2m from the Credence Placement has been utilised to satisfy part of the consideration for the acquisition, which amounts to RM46.7m. The company will make further announcements upon satisfaction of the conditions and payment of the remaining consideration of RM10m.

STOCK IMPACT
• Target to ramp up to 50% utilisation in 2014. The CLS acquisition adds 180,000 tonnes of annual production capacity to the group. Management intends to achieve 50% utilisation by end-14, which doubles the group’s output potential to close to 200,000 tonnes this year. Numerous grades of Standard Malaysian Rubber (SMR) will be produced in the two Ipoh factories with 100,000 tonnes to be allocated for the premium SMR2-CV. We expect production here to commence soon as the factories are operationally ready.

• Looking to enlarge customer portfolio with the addition of Korean tyre makers such as Hankook, Kumho and Nexen. Halcyon is working to achieve qualifiedsupplier status for these and other global brands. We think the group’s strong CSR initiatives will boost its approval applications.

Currently, the stock could continue its attempt to break out of its prior trading range (S$0.65-0.83) to test S$0.89. At the moment, the stock is trading above its immediate rising trendline and its 50- day EMA, which could be acting as support. The immediate support is at S$0.785.

• Eyes exciting 2014. For the seasonally weak 4Q13, we expect Halcyon’s gross material profit to be lower than the average US$413/tonne in 9M13 but still remain above US$350/tonne. Management is confident it will meet its committed volume of 26,575 tonnes for the quarter. We are excited about the huge jump in midstream capacity this year and its entry into the Malaysian market, which will help mitigate seasonal effects, reduce concentration risk and diversify its revenue base. We project the group’s earnings to more than double to US$30m in 2014.

VALUATION
• Maintain BUY and target price of S$0.95 based on a peer-average PE of 10x applied to our 2014F EPS estimate of 9.5 S cents.


Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 20/01/14