Halcyon Agri Corporation - SAC Capital 2021-12-31: Riding On Rubber Demand


Halcyon Agri Corporation - Riding On Rubber Demand

  • Halcyon Agri Corporation (SGX:5VJ) is an integrated natural rubber supply chain manager, engaged in the production, processing & distribution of natural rubber products.
  • Halcyon Agri Corporation’s presence is entrenched across the entire value chain of natural rubber through its wholly owned subsidiaries, Halcyon Rubber Company (HRC) and Corrie MacColl (CMC).
  • Halcyon Agri Corporation commanded 9% of global market share of natural rubber in 2020.

Halcyon Rubber Company

  • Halcyon Rubber Company (HRC) is involved in upstream and midstream of natural rubber value chain. HRC collects latex/cup lumps from rubber tree tapping and processes those to tyre-grade natural rubber products before marketing them to global tyre makers under HeveaPro brand. HRC’s customers includes Bridgestone, Michelin and Goodyear. HRC’s market share of tyre–grade natural rubber is 11% in 2020.
  • natural rubber is produced mainly in the Asia region with Thailand, Vietnam and Indonesia being the top 3 producers. Raw material supply in natural rubber industry is fragmented with ~85% of global natural rubber production coming from individual smallholder farmers. As such, HRC sourced almost all of their raw materials from smallholder farmers scattered across key rubber origins. Contribution from its own plantation in Ivory Coast is insignificant.
  • The raw materials (“cuplumps”) collected are processed in HRC’s operated factories into Technically Specified Rubber (TSR), which is commonly used by tyre makers. HRC owns 36 factories with a combined production capacity of 1.537m metric ton. Utilization rate is typically at 64-65%.
  • HRC supplied 881,467 metric ton of HeveaPro tyre grade natural rubber to the tyre industry in FY20.

Corrie MacColl

  • Corrie MacColl (CMC) is made of 2 units:
    • CMC Plantations (CMCP) and
    • CMC International (CMCI).
  • CMCP owns plantations for rubber production. Output from CMCP together with natural rubber products procured from 3rd party sources will be distributed by CMCI. CMC’s natural rubber products are used in industrial and non-tyre applications such as gloves and apparels.
  • CMC Plantations (CMCP) has 3 plantations in total, located in Malaysia and Cameroon. CMCP produced 15,015 metric ton and 19,597 metric ton of predominantly concentrated latex in FY20 and FY19 respectively, the decrease is mainly due to suspension of tapping activities amid COVID-19 lockdown restriction. Currently, the average tree age is 12.2 years, and as the trees turn mature, the yields will improve. CMCP has also planted oil palm trees within its Malaysia plantation, producing 8,356 metric ton of fresh fruit bunches in FY20.
  • CMC International (CMCI) markets its in-house production output as well as 3rd party sourced natural rubber products through its broad distribution network covering 9 countries. CMCI seeks to add value to its customers by providing value-added logistic services, and as a merchandiser at destination, its volumes are lower but it is compensated by higher unit margins. CMCI distributed a total of 349,820 metric ton of products in FY20, including plantation outputs.
  • For FY20, CMCI fulfilled a total of 349,820 metric ton of natural rubber products.
  • There is high barrier of entry into upstream and midstream of the industry due to its capital intensive nature required for new planting and maintenance of plantations, setting up of processing facilities as well as building an extensive distribution network. Proven track record of quality assured products gives established players an upper hand.

Synthetic rubber not a complete substitute

Lim Shu Rong SAC Capital Research | https://www.saccapital.com.sg/ 2021-12-31
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000