Halcyon

Halcyon (HACL): announced that it has signed a term sheet for the acquisition of JFL Agro, a company holding 24,327 acres of 99-year leasehold Sultanate land in Kelantan, Malaysia. The land, of which an estimated 16,061 acres is cultivable, will be developed as a natural rubber plantation. The purchase price for the acquisition is approximately RM130.9m. UOB Kay Hian note that the latest move is in line with Halycon’s long-term strategic plan to expand upstream. This is also complementary to its midstream expansion plans in Malaysia, with the pending acquisition of two factories in Ipoh. Management estimates that once the rubber plantation is fully matured, it will provide up to 10% of the required raw material for the Malaysian factories. Product diversity and margin expansion are some of the potential benefits to HACL for this upstream move. With proper estate management and best-practice planting and tapping techniques, HACL could control the quality of its raw material and choose to focus on producing premium/specialty grades of rubber. It may also consider other higher-margin rubber products. HACL will capture both the upstream planting margin and the midstream processing margin. Overall, house maintains Buy with $1.00 TP.