Equity Research FLASH NOTE
BISI International The new gold (corn) mines
BUY
Recently, in the beginning of June, government has launched a program to encourage intercropping corn in 1 million hectares in unproductive palm oil and rubber area, in a bid to accelerate domestic corn production. Government also mentioned that budget for intercropping corn program will be raised despite of declining overall budget. This year government will increase intercropping corn in palm oil area from 0.18 mn ha to 0.70 mn ha (+0.52 mn ha) with total budget of Rp832 bn. In our view, intercropping corn could result in permanent increase in corn harvested area, and BISI will be the beneficiary from rising demand on corn seeds. We maintain Buy on BISI with price target of Rp2,400.
Current price Price target Upside
Rp1,770 Rp2,400 35.6%
14 June 2016
Potential area for intercropping may reach 3.2 mn ha
INDONESIA
Quoting from press, in February, government also planned to extend corn cultivation area in land owned by State Forestry Company (Perhutani). This is collaboration between Perhutani, National Logistic Agency (Bulog) and other SOEs. Our on the ground visit in Central Java also confirmed that the program has been running well so far.
Agriculture Stock Data
In our calculation, potential area for intercropping may reach 3.2 mn ha, which consist of: (a) 1.2 mn ha from unproductive palm oil area, (b) 0.4 mn ha unproductive rubber area, and (c) 1.5 mn ha from forest production owned by Perhutani. Should government be able to implement intercropping in 1mn ha from aforementioned area, additional market demand for corn seeds could reach 15,000 tons, or equivalent to 25% current annual market demand.
Bloomberg Ticker Outs. Share (bn) Mkt Cap (USD bn) 52 Week Range (Rp) 6M Avg Val (Rp bn) YTD Returns (%) Beta (x)
BISI IJ Equity 3.00 0.40 830-1,840 1.4 30.7 1.2
Potential corn harvested area from intercropping less likely to decrease We see potential area for intercropping corn will be less likely to decrease, unless government implements moratorium policy. Furthermore, we see a low possibility for farmers to switch to plant other food crop commodities once they start planting corn. For nonirrigated area like palm oil and rubber lands, corn is more suitable rather than paddy given less water needs, and relatively easier to market compared to other secondary food crops commodities.
Upside everywhere, maintain buy We maintain our bullish view on BISI given strong upside from government’s supportive policies to speed up corn production. We expect BISI to book NPAT of Rp361bn (+36% YoY) this year, driven by 30% growth of corn seeds volume (please see our previous report). Extra demand from intercropping may result full year earnings that beat our expectation. We reiterate our Buy with DCF price target of Rp2,400 (WACC 12%, LTG 5%), implying 20x P/E 2016F.
Key investment metrics Revenue (Rp bn) Net profit (Rp bn)
2014 1,156
2015 1,438
2016F
2017F
2018F
1,762
1,938
2,150
Share Price Performance 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Share Performance (%) Month Absolute Relative 3m 12.8 10.5 6m 39.4 25.0 12m 25.8 26.3
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%
Inav Haria Chandra
ROE
10.3%
14.5%
17.3%
18.3%
18.4%
ROA
8.8%
12.3%
14.8%
15.7%
15.9%
[email protected] +62 21 8067 3133
ROIC
9.4%
13.8%
17.1%
20.4%
21.9%
P/E (x)
32.3
20.2
14.8
12.1
10.3
3.3
2.9
2.6
2.2
1.9
EV/EBITDA (x)
23.1
14.6
10.2
8.2
6.7
Dividend yield
0.7%
1.2%
1.7%
2.1%
2.4%
P/BV (x)
SucorInvest
BISI International
14 June 2016
Figure 1: Intercropping corn with palm oil in West Sumatera
Figure 2. Corn harvested in land owned by Perhutani
Source: Various sources
Source: Various sources
Figure 3: Our on the ground check in Central Java
Source: Sucorinvest
Figure 4: Indonesia’s palm oil production smallholders (million hectares)
area owned by
Figure 5. Indonesia’s rubber production smallholders (million hectares)
area owned by
0.10
0.10
0.39 1.23
3.41 2.60
Immature
Mature
Source: Directorate General of Estate Crops
Damaged
Immature
Mature
Damaged
Source: Directorate General of Estate Crops
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SucorInvest
BISI International
14 June 2016
Figure 6: Total land owned by Perhutani (in million hectares)
Figure 7. Potential increasing corn harvested area from intercropping mn ha 4.0 3.5
0.68
3.0 2.5 2.0
0.43
1.45
1.5
3.8
Land owned by Perhutani
1.5
Rubber
0.4
Palm oil
1.2
1.0
Potential area for intercropping
Government target for intercropping (2016)
1.0 0.5 0.0
Production forest
Limited production forest
Source: Directorate General of Estate Crops
Conservative
Corn Harvested area (2015)
Source: BPS, Directorate General of Estate Crops
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SucorInvest
BISI International
14 June 2016
Financial Summary Profit and loss (Rp bn) Total revenue Cost of Revenue Gross Profit Operating expense Operating profit EBITDA Interest expense Interest income Forex gain (loss) Other income (exp) Pre-tax income Income tax exp (benefit) Minority interest Extraordinary items Net profit
2014 2015 1,156 1,438 752 856 403 582 216 273 203 321 223 343 1 1 7 12 (0) 0 0 209 332 44 68 0 0 165 264
2016F 1,762 971 791 352 438 460 13 451 90 361
2017F 1,938 1,043 896 368 527 551 24 552 110 441
2018F 2,150 1,131 1,019 408 610 634 33 643 129 515
Balance sheet (Rp bn) Cash ST investments Accounts receivable Inventories Others Total Current Assets
2014 2015 174 315 627 722 534 713 194 29 1,530 1,778
2016F 606 766 647 35 2,055
2017F 829 843 695 39 2,406
2018F 1,086 935 754 43 2,818
PP&E - net Others Total Assets
276 66 1,871
293 70 2,142
301 86 2,442
304 95 2,805
307 105 3,230
89 122 211
144 135 279
132 166 298
142 182 324
154 202 356
55 0 1,605 1,871
47 0 1,815 2,141
58 0 2,086 2,442
63 0 2,417 2,805
70 0 2,803 3,230
ST borrowing Accounts payable Other current liabilities Total Current Liabilities Long-term loan Others Minority Interest Shareholders' equity Total Liabilities and Equity
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SucorInvest
BISI International
14 June 2016
Cashflow (Rp bn) EBIT D&A Others Change in working capital Interest & taxes Operating cash flow
2014 203 20 (8) (51) (38) 126
2015 321 22 (4) (40) (57) 242
2016F 438 22 34 (78) 417
2017F 527 23 (102) (86) 363
2018F 610 24 (123) (96) 416
Capital expenditures Disposal of fixed asset Change in ST investment Dividend received Others Investing cash flow
(48) 3 (45)
(39) 1 (38)
(30) (16) (46)
(26) (9) (35)
(27) (10) (37)
80
204
371
328
378
Change in Equity Net change in LT borrowings Net change in ST borrowings Cash Dividends Paid Others Financing cash flow
(1) (36) 0 (37)
(63) (0) (63)
(90) 11 (80)
(110) 6 (105)
(129) 7 (122)
Beginning cash Change in cash Other adjustment Ending cash
131 44 174
174 141 (1) 315
315 291
606 223
829 257
606
829
1,086
2016F 44.9% 24.9% 20.5% 17.3% 14.8% 17.1% 14.8 2.6 4,718 10.2 1.7% 7.0% (606) (0.3)
2017F 46.2% 27.2% 22.8% 18.3% 15.7% 20.4% 12.1 2.2 4,494 8.2 2.1% 6.2% (829) (0.3)
2018F 47.4% 28.4% 23.9% 18.4% 15.9% 21.9% 10.3 1.9 4,238 6.7 2.4% 7.1% (1,086) (0.4)
Free cashflow
Key ratios Gross profit margin Operating profit margin Net Profit margin ROE ROA ROIC PE (x) PBV (x) EV (Rp bn) EV/EBITDA (x) Dividend yield Free cash flow yield Net debt (Rp bn) Net debt/EBITDA Net debt/equity
2014 34.9% 17.6% 14.3% 10.3% 8.8% 9.4% 32.3 3.3 5,159 23.1 0.7% 1.5% (174) (0.8) (0.1)
2015 40.5% 22.3% 18.4% 14.5% 12.3% 13.8% 20.2 2.9 5,009 14.6 1.2% 3.8% (315) (0.9) (0.2)
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SucorInvest
BISI International
14 June 2016
Sucorinvest rating definition, analysts certification, and important disclosure
Ratings for Sectors Overweight Neutral Underweight
: We expect the industry to perform better than the primary market index (JCI) over the next 12 months. : We expect the industry to perform in line with the primary market index (JCI) over the next 12 months. : We expect the industry to underperform the primary market index (JCI) over the next 12 months.
Ratings for Stocks Buy Hold Sell
: We expect this stock to give return (excluding dividend) of above 10% over the next 12 months. : We expect this stock to give return of between -10% and 10% over the next 12 months. : 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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SucorInvest
BISI International
14 June 2016
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Research 1. Inav Haria Chandra 2. Adityo M. Yogiswara 3. Alexander Budiman 4. Sharon Anastasia Tjahjadi 5. Felicia Putri 6. Sandy Ham 7. Emily Bonosusatya 8. Ahmad Hapiz
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