Share Performance (%)
Month Absolute Relative
3m 10.3 12.5
6m 17.5 17.7
12m 1.2 10.9
BUY
BISI International
We are the seed makers
German drugs and chemical group Bayer AG has offered to buy Monsanto, the world largest seeds producers, for USD62 bn in cash, implying an acquisition multiple of 26x P/E 2016F. Monsanto eventually declined the offer, saying that the company deserves higher price. The offer made by Bayer reminds us on Chinese SOE ChinaChem buying on Syngenta earlier this year, also with valuation of 26x P/E 2016F.
Seeds producers always get valuation higher than commodity stocks
Theoretically, all seeds producers have to bear volatility in earnings and cash-flow from its correlation with commodity price. However, market have not value them at low-teens P/E multiples (like commodity companies), considering 1) more ability to maintain margins as they do not act as price taker, and 2) sustainable value-creation to shareholders driven by product innovation. We think a valuation above 20x P/E is reasonable, given consistency in delivering solid earnings, free cash-flow, and mid-teen ROIC during past decade.
Valuation reach 26x P/E despite of tepid growth outlook
The acquisition multiple for Monsanto and Syngenta stood at 26x P/E 2016F, a 20-30% premium compared to its historical 5-year average. It is interesting to note that both companies are in mature stage and currently face similar issues: tepid long term growth outlook due to declining global planted area, and short term headwind from low soft-commodity price.
The logic behind its mind-boggling valuation could be: food security issue become increasingly important given very limited arable land, fresh water resources, and unstoppable population growth. Thus, ChinaChem buying on Syngenta simply reflects China’s rising food security concerns.
BISI: the cheapest seeds producer in the world
BISI is currently trading at 13-14x P/E 2016F, implying 40% discount compared to average multiple of global seeds producer. Unlike major global seeds producer, long term growth outlook for BISI remains strong given the upside from increasing harvested area, rising hybrid adoption and favorable domestic selling price for corn.
Combined with low balance sheet risk, improving FCF and higher return on capital from the company, we believe the 40% discount on the multiple is too much, and our DCF based target price of Rp2,400 (implying 20x PE 2016F) is justifiable. Maintain Buy.
INDONESIA
Agriculture
Share Price Performance
Equity Research
FLASH NOTE
26 May 2016
Stock Data
Bloomberg Ticker BISI IJ Equity Outs. Share (bn) 3.00 Mkt Cap (USD bn) 0.37 52 Week Range (Rp) 830-1,835 6M Avg Val (Rp bn) 1.4 YTD Returns (%) 23.2 Beta (x) 1.2 Current price Rp1,660 Price target Rp2,400 Upside 44.5 % 2014 2015 2016F 2017F 2018F Revenue (Rp bn) 1,156 1,438 1,762 1,938 2,150 Net profit (Rp bn) 165 264 361 441 515 EPS growth 29.9% 60.0% 36.7% 22.3% 16.7% Net profit margin 14.3% 18.4% 20.5% 22.8% 23.9% ROE 10.3% 14.5% 17.3% 18.3% 18.4% ROA 8.8% 12.3% 14.8% 15.7% 15.9% ROIC 9.4% 13.8% 17.1% 20.4% 21.9% P/E (x) 29.5 18.5 13.5 11.0 9.5 P/BV (x) 3.0 2.7 2.3 2.0 1.7 EV/EBITDA (x) 21.1 13.3 9.3 7.3 6.0 Dividend yield 0.7% 1.3% 1.9% 2.3% 2.6%
Inav Haria Chandra
+62 21 8067 3133
Key investment metrics
400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Ja n -14 Ma r-14 M a y -14 Ju l-14 Se p -14 Nov -14 Ja n -15 Ma r-15 M a y -15 Ju l-15 Se p -15 Nov -15 Ja n -16 Ma r-16 M a y -16
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Figure 1: Seeds producer have valued above 20x P/E…Source: Bloomberg
Figure 2:… given its consistency in delivering solid earnings and FCF…
Source: Bloomberg
Figure 3: … and mid teen ROIC
Source: Bloomberg 26 0 5 10 15 20 25 30 35 40 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (x) Historical P/E - Monsanto
Bid from Bayer
Average 25x P/E 26 0 5 10 15 20 25 30 35 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (x) Historical P/E - Syngenta
Acquisition by ChinaChem Average 21x P/E 0 500 1,000 1,500 2,000 2,500 3,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USD mn
Historical earnings and FCF - Monsanto
Net income FCF 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USD mn
Historical earnings and FCF - Syngenta
Net income FCF 0 5 10 15 20 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 %
Historical ROIC - Monsanto
0 2 4 6 8 10 12 14 16 18 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 %
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Figure 4: At 40% discount compared to average multiple of global seeds company, BISI is a very interesting investment opportunity…
Figure 5: …considering relatively higher revenue growth…
Source: Bloomberg. Sucorinvest Source: Bloomberg, Sucorinvest
Figure 6: … higher EPS growth… Figure 7: …higher FCF yield…
Source: Bloomberg, Sucorinvest Source: Bloomberg, Sucorinvest
Figure 8: …higher return on capital… Figure 9: … and net cash balance sheet
Source: Bloomberg, Sucorinvest Source: Bloomberg, Sucorinvest 17.1 14.4 12.6 12.4 4.8 11.1 0 2 4 6 8 10 12 14 16 18
BISI Dupont Syngenta Monsanto Sakata Average (excl. BISI) ROIC (%) - 2016F -0.29 -0.15 0.26 0.28 0.76 0.28 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
BISI Sakata Dupont Syngenta Monsanto Average (excl. BISI)
Net debt to equity (x) - 2016F
8.0% 4.8% 4.2% 3.8% 2.3% 3.8% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
BISI Dupont Syngenta Monsanto Sakata Average
(excl. BISI) FCF yield 14% 5% 4% 3% 0% 3% 0% 2% 4% 6% 8% 10% 12% 14% 16%
BISI Sakata Dupont Syngenta Monsanto Average (excl. BISI)
3-yr forward Revenue CAGR
25% 16% 14% 7% 0% 9% -5% 0% 5% 10% 15% 20% 25% 30%
BISI Sakata Dupont Syngenta Monsanto Average (excl. BISI)
3-yr forward EPS CAGR
13.5 20.8 20.8 22.2 24.3 22.0 -5 10 15 20 25 30
BISI Monsanto Dupont Syngenta Sakata Average (excl. BISI)
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Financial Summary
Profit and loss (Rp bn) 2014 2015 2016F 2017F 2018F
Total revenue 1,156 1,438 1,762 1,938 2,150 Cost of Revenue 752 856 971 1,043 1,131 Gross Profit 403 582 791 896 1,019 Operating expense 216 273 352 368 408 Operating profit 203 321 438 527 610 EBITDA 223 343 460 551 634 Interest expense 1 1 - - -Interest income 7 12 13 24 33
Forex gain (loss) (0) - - -
-Other income (exp) 0 0 - -
-Pre-tax income 209 332 451 552 643
Income tax exp (benefit) 44 68 90 110 129
Minority interest 0 0 - - -Extraordinary items - - - - -Net profit 165 264 361 441 515 Balance sheet (Rp bn) 2014 2015 2016F 2017F 2018F Cash 174 315 606 829 1,086 ST investments - - - - -Accounts receivable 627 722 766 843 935 Inventories 534 713 647 695 754 Others 194 29 35 39 43
Total Current Assets 1,530 1,778 2,055 2,406 2,818 PP&E - net 276 293 301 304 307
Others 66 70 86 95 105
Total Assets 1,871 2,142 2,442 2,805 3,230 ST borrowing - - - - -Accounts payable 89 144 132 142 154
Other current liabilities 122 135 166 182 202
Total Current Liabilities 211 279 298 324 356
Long-term loan - - - - -Others 55 47 58 63 70
Minority Interest 0 0 0 0 0
Shareholders' equity 1,605 1,815 2,086 2,417 2,803
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Cashflow (Rp bn) 2014 2015 2016F 2017F 2018F
EBIT 203 321 438 527 610
D&A 20 22 22 23 24
Others (8) (4) - -
-Change in working capital (51) (40) 34 (102) (123) Interest & taxes (38) (57) (78) (86) (96)
Operating cash flow 126 242 417 363 416
Capital expenditures (48) (39) (30) (26) (27) Disposal of fixed asset 3 1 - - -Change in ST investment - - - - -Dividend received - - - -
-Others - - (16) (9) (10)
Investing cash flow (45) (38) (46) (35) (37) Free cashflow 80 204 371 328 378
Change in Equity - - - - -Net change in LT borrowings - - - - -Net change in ST borrowings (1) - - - -Cash Dividends Paid (36) (63) (90) (110) (129)
Others 0 (0) 11 6 7
Financing cash flow (37) (63) (80) (105) (122)
Beginning cash 131 174 315 606 829
Change in cash 44 141 291 223 257
Other adjustment - (1)
Ending cash 174 315 606 829 1,086
Key ratios 2014 2015 2016F 2017F 2018F
Gross profit margin 34.9% 40.5% 44.9% 46.2% 47.4%
Operating profit margin 17.6% 22.3% 24.9% 27.2% 28.4%
Net Profit margin 14.3% 18.4% 20.5% 22.8% 23.9%
ROE 10.3% 14.5% 17.3% 18.3% 18.4% ROA 8.8% 12.3% 14.8% 15.7% 15.9% ROIC 9.4% 13.8% 17.1% 20.4% 21.9% PE (x) 29.5 18.5 13.5 11.0 9.5 PBV (x) 3.0 2.7 2.3 2.0 1.7 EV (Rp bn) 4,709 4,559 4,268 4,044 3,788 EV/EBITDA (x) 21.1 13.3 9.3 7.3 6.0 Dividend yield 0.7% 1.3% 1.9% 2.3% 2.6%
Free cash flow yield 1.6% 4.2% 7.6% 6.7% 7.8%
Net debt (Rp bn) (174) (315) (606) (829) (1,086)
Net debt/EBITDA (0.8) (0.9) - - -Net debt/equity (0.1) (0.2) (0.3) (0.3) (0.4)
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Sucorinvest rating definition, analysts certification, and important disclosure
Ratings for Sectors
Overweight : We expect the industry to perform better than the primary market index (JCI) over the next 12 months. Neutral : We expect the industry to perform in line with the primary m arket index (JCI) over the next 12 months.
Underweight : We expect the industry to underperform the primary market index (JCI) over the next 12 months.
Ratings for Stocks
Buy : We expect this stock to give return (excluding dividend) of above 10% over the next 12 months.
Hold : We expect this stock to give return of between -10% and 10% over the next 12 months.
Sell : We expect this stock to give return of -10% or lower over the next 12 months.
Analyst Certification
The research analyst(s) primarily responsible for the preparation of this research report hereby certify that all of the views expressed in this research report accurately reflect their personal views about any and all of the subject securities or issuers. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
Disclaimers
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. PT Sucorinvest Central Gani accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. PT Sucorinvest Central Gani and its directors, officials and/or employees may have positions in, and may affect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. PT Sucorinvest Central Gani may also seek investment banking business with companies covered in its research reports. As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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Sales Office & Research
PT. Sucorinvest Central Gani
Research
1. Inav Haria Chandra Equity Analyst [email protected]
2. Adityo M. Yogiswara Equity Analyst [email protected]
3. Alexander Budiman Equity Analyst [email protected]
4. Sharon Anastasia Tjahjadi Equity Analyst [email protected]
5. Felicia Putri Equity Analyst [email protected]
6. Sandy Ham Equity Analyst [email protected]
7. Emily Bonosusatya Equity Analyst [email protected]
8. Ahmad Hapiz Research support [email protected]
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