Halcyon Agri

Halcyon Agri: UOB Kay Hian initiates coverage with Buy Call and $1.00 TP. Note that HACL has a current production capacity of 102,880 tonnes. It is set to add 180,000 tonnes in 2014 and 50,000 tonnes in 2015 and house conservatively forecast the expansion will boost its earnings to US$30m by 2015, which translates to a 3-year (2012-15) CAGR of 44%. Its country diversification will also reduce the negative seasonality effects. The wintering period, which cuts NR production by as much as 50%, lasts from September to December in South Indonesia and from March to May in Malaysia. Management uses a risk model that allows for a resilient profitability structure. In a month-long cycle, HACL buys raw materials (at a discount) and sells processed NR (at a premium) that is pegged to market NR prices. In doing so, it is able to secure a gross profit of at least US$350/tonne regardless of NR price movements. Despite falling NR prices ytd, house estimate a 20% yoy increase in HACL’s 2013 earnings, driven by committed orders of 78,819 tonnes (+18% vs 2012 delivery) so far with an option to increase by 9,374 tonnes. The total committed orders translate to a utilisation rate of 77% of current capacity but management sees the optimal range at 80-85%.