Halcyon

Halcyon: CS initiates coverage with an Outperform rating and $1.10 TP. House believe there is 38% share price upside driven by significant capacity growth, supported by increasing demand in the global tyre market, driving earnings CAGR of 60% over 2013-16E. Halcyon is a midstream player involved in the production of processed natural rubber. Its unique business model has allowed the company to maintain a stable annual GMP/t of US$350-400 despite fluctuations in natural rubber prices. In addition, close to 75% of volumes are sold through long-term contracts. With the expansion of existing facilities and proposed acquisitions in Malaysia and Indonesia, CS expect sales volume to increase from 80,000t in 2013 to 305,000t in 2016, leading to a quadrupling of net profit from US$10 mn in 2013E to US$41 mn in 2016E. Halcyon trades at a 2015E P/E of 6.5x—significant discount to peers despite its greater earnings visibility. The TP of $1.10 is based on a 2015E P/E of 9.0x, in line with peers. Key risks include dependence on raw materials from several large suppliers and significant revenue contribution from top five customers.