Peter Kennan presented his in-depth investment thesis on Halcyon Agri (Singapore: HACL) at Asian Investing Summit 2016.
Halcyon Agri is a global leader in natural rubber in origination, production, and distribution. The company was founded in 2010 by current chairman and CEO Robert Meyer and has been listed in Singapore since 2013. Halcyon has a rich history, with roots tracing back to 1930s with the founding of PT HokTong and PT Rubber Hock Lie in Indonesia. The share price has been depressed recently due to a significant decline in natural rubber prices. In normal market conditions, processing margins are fairly stable. When prices are low, processing margins need to be reduced to enable subsistence farmers to earn a living. The current rubber price is not sustainable as rubber trees need to tapped for rubber regularly or they die. In Peter’s view, the low rubber price has created a very attractive entry point for investors. The recent share price does not reflect any upside from the current depressed gross margins nor any benefits from impending industry consolidation. Halcyon controls around 12.5% of the international natural rubber market and a significantly higher share of the ex-China market (the Chinese largely buy rubber from Thailand whilst international customers typically buy from Indonesia, where Halcyon is the largest player). The company recently announced that it is in discussions with Sinochem, a leading Chinese state owned enterprise, in relation to a merger between Halcyon and Sinochem’s interests in natural rubber. The resulting company would have a number one position in the global market. This would significantly enhance value for Halcyon shareholders and secure the company’s strategic objective. Peter estimates that standalone Halcyon has a value of S$2 per share, compared to the recent share price of S$0.66/share. This is based on a return to average industry gross margins and an EBIT multiple of ten times. The potential merger provides further upside to our valuation and reduces financing and other execution risks in Halcyon’s strategy.
About the instructor:
Peter Kennan is Managing Partner and CIO of Black Crane Capital. He has 15 years of corporate finance experience across a diverse range of sectors and transactions with UBS Asia and Australia. With UBS, Peter was formerly the Head of Asian Industrials Group for UBS Asia, a corporate finance sector team covering energy, infrastructure, resources, consumer/retail and general industrial companies. He achieved number 1 team rating in Asia with revenues of US$400m in 2007, grown from just US$20m over a four year period. Peter was also the Head of Telecoms and Media sector team for UBS Australia specializing in M&A, advising on many large, complex transactions. Prior to UBS, Peter spent 7 years with BP in a variety of engineering and commercial roles.
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