06 January 2014 Asia Pacific/Singapore Equity Research Forest Products

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP) Rating OUTPERFORM* [V] Price (02 Jan 14, S$) 0.80 Target price (S$) 1.10¹ Upside/downside (%) 38.4 Mkt cap (S$ mn) 294.2 (US$ 232.1) Enterprise value (US$ mn) 185.08 Number of shares (mn) 370.00 Free float (%) 33.0 52-week price range 1.07 - 0.40 ADTO - 6M (US$ mn) 1.9 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts Louis Chua 65 6212 3024 [email protected] Gerald Wong, CFA 65 6212 3037 [email protected]

INITIATION

Tapping into rubber growth ■ Initiating coverage with OUTPERFORM. We initiate coverage of Halcyon Agri with an OUTPERFORM rating and target price of S$1.10. We believe there is a 38% share price upside driven by significant capacity growth and supported by increasing demand in the global tyre market, which should drive earnings CAGR of 60% over 2013-16E. ■ Resilient business model. Halcyon is a midstream player in the natural rubber supply chain involved in the production of processed natural rubber for leading global tyre manufacturers. Its unique business model allows the company to maintain a stable annual Gross Material Profit (GMP) per tonne of US$350-400 despite fluctuations in natural rubber prices. In addition, close to 75% of volumes are sold through long-term sales contracts. ■ Capacity expansion to drive earnings growth. Through the expansion of its existing facilities and proposed acquisitions in Malaysia and Indonesia, we expect sales volume to increase from 80,000t in 2013 to 305,000t in 2016. With GMP/tonne expected to stay above US$350, we forecast net profit to quadruple from US$10 mn in 2013E to US$41 mn in 2016E. In the medium term, rubber demand is likely to be supported by steady growth in the Chinese tyre market and a recovery in the North American tyre market. Our analysis of the top 10 tyre manufacturers globally indicates that aggregate revenue is likely to grow by 5% and 6% in 2014 and 2015, respectively. ■ Valuation attractive. Halcyon currently trades at a 2014E P/E of 9.4x and 2015E P/E of 6.5x, a significant discount to global tyre manufacturers and commodity traders despite its greater earnings visibility. Our S$1.10 target price is based on a 2015E P/E of 9.0x, in line with its peers. In our view, the successful execution of its planned capacity growth would drive re-rating. Key risks include dependence on raw materials from several large suppliers and significant revenue contribution from its top five customers.

Share price performance 2 1.5 1 0.5 0 Feb-13

Price (LHS)

Jun-13

Rebased Rel (RHS)

400 300 200 100 0

Oct-13

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 3174.65 on 02/01/14 On 02/01/14 the spot exchange rate was S$1.27/US$1

Performance over Absolute (%) Relative (%)

1M 8.2 8.6

3M 6.7 5.5

12M — —

Financial and valuation metrics Year Revenue (US$ mn) EBITDA (US$ mn) EBIT (US$ mn) Net profit (US$ mn) EPS (CS adj.) (US$) Change from previous EPS (%) Consensus EPS (US$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/12A 222.0 14.3 13.6 9.9 0.04 n.a. n.a. 338.6 15.6 1.3 17.3 5.9 45.8 61.8

12/13E 208.0 13.8 13.1 10.1 0.03

12/14E 630.0 35.2 34.0 26.5 0.07

12/15E 945.0 58.0 50.9 38.5 0.10

0.04 -18.1 19.1 1.3 13.4 2.5 16.0 net cash

0.08 103.6 9.4 2.5 9.2 2.0 23.6 73.2

0.09 45.2 6.5 3.8 5.7 1.6 27.5 63.0

Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do

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.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

06 January 2014

Focus charts Figure 1: Halcyon has maintained stable profitability

Figure 2: We expect production capacity to grow to

(measured in GMP/t) despite falling rubber prices

383,000t in 2016E through proposed acquisitions

$/t

GMP/t (US$)

6,000

('000 tonnes)

600.00

5,000

500.00

400

369

383

383

350

36

50

50

180

180

180

153

153

153

2014E

2015E

2016E

300

4,000

400.00

3,000

300.00

2,000

200.00

1,000

250 200 150

100.00

-

100

82

92

50

82

92

0.00

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

SICOM - TSR20

Jul-12

Oct-12

Jan-13

Apr-13

103

103

-

Jul-13

2011

2012

Quarterly GMP/t

2013E

HMK1 & HMK2

Chip Lam Seng

Golden Energi

Source: Bloomberg, Company data, Credit Suisse. *2011 GMP/t based on FY11

Source: Company data, Credit Suisse estimates

Figure 3: We expect sales volume to grow from 80,000t in

Figure 4: We expect earnings CAGR of 60% in 2013-16E

2013E to 305,000t in 2016E with capacity expansion

with growth in sales volume and stable GMP/t

('000 tonnes) 400

100%

(US$ '000) 80,000

350

88%

70,000

350

75%

60,000

300

63%

50,000

250

50%

40,000

200

38%

30,000

150

25%

20,000

100

13%

10,000

50

300 250

200 150

270 210

100 50

-

305

47

67

80

2011

2012

2013E

0% Volumes

2014E

2015E

('000 tonnes) 400

-

2016E

2011

Utilisation (%) (RHS)

2012

2013E

Gross profits (US$ '000)

2014E

2015E

Net profits (US$ '000)

2016E Volumes

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse

Figure 5: Rubber demand is likely to be supported by

Figure 6: Halcyon trades at a discount to peers, and could

steady growth in the global tyre market

be re-rated with successful execution of its planned capacity growth

(mn tonnes) 20

(mn units) 3,000

2015 P/E (x) 16.0

16

2,400

12

1,800

14.1 14.0 12.0

8

1,200

10.4

10.0 8.0

6.5

8.8

9.0

Global Tyres Avg

Halcyon Agri (based on TP)

7.0

6.0

4

600

0

0 2000200120022003200420052006200720082009201020112012201320142015201620172018201920202021 Natural rubber consumption

Total tyre sales (RHS)

Source: IRSG, Credit Suisse

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

4.0 2.0 0.0 Halcyon Agri

Sri Trang Agro

Supply Chain Managers Avg

Palm Oil Avg

Source: Company data, Credit Suisse estimates, IBES estimates

2

06 January 2014

Tapping into rubber growth We initiate coverage of Halcyon Agri with an OUTPERFORM rating and target price of S$1.10. We believe there is 38% share price upside driven by significant capacity growth and supported by increasing demand in the global tyre market, which will drive earnings CAGR of 60% over 2013-16E.

38% share price upside driven by capacity growth and increasing tyre market demand

Resilient business model Halcyon is a midstream player in the natural rubber supply chain, specialising in the production and marketing of processed natural rubber. Halcyon counts the leading global tyre manufacturers as its customers, such as Bridgestone and Cooper Tires. Its unique business model allows the company to maintain a stable annual Gross Material Profit (GMP) per tonne despite fluctuations in natural rubber prices. Despite rubber prices having more than halved since the beginning of 2011, annual GMP per tonne of Halcyon has been relatively stable at US$350-400/t. In addition, close to 75% of volumes are sold through long-term sales contracts, thus providing strong visibility on future volumes.

Stable annual GMP per tonne despite fluctuations in natural rubber prices, with strong visibility on volumes through long-term contracts

Capacity expansion to drive earnings growth Through capacity expansion in Malaysia and Indonesia, we expect sales volume to increase from 80,000t in 2013 to 305,000t in 2016. The existing production facilities located in Palembang, Indonesia, were originally acquired in 2010. Expansion and upgrading of existing facilities is expected to add 60,500 tonnes per annum of production capacity by 2014. With the acquisition of Chip Lam Seng (CLS) in Malaysia and PT Golden Energi in Indonesia, Halcyon Agri’s potential annual production capacity would more than quadruple by 2015 from 92,000 tonnes per annum in 2012. With GMP/tonne expected to stay above US$350, we forecast net profit to quadruple from US$10 mn in 2013E to US$41 mn in 2016E.

We expect capacity expansion to lead to net profit increasing from US$10 mn in 2013E to US$41 mn in 2016E, representing a CAGR of 60%

Beneficiary of rising natural rubber demand Halcyon is a beneficiary of rising demand for natural rubber, which is expected to grow 53% from 10.9 mn tonnes in 2011 to 16.7 mn tonnes in 2021, representing a CAGR of 4.4%, This is driven mainly by an expanding tyre market, which is the largest consumer of natural rubber, accounting for about 70% of total demand. The tyre market has defensive growth characteristics as the replacement market makes up for 70% of the total tyre demand. In the medium term, rubber demand is likely to be supported by steady growth in the Chinese tyre market and a recovery in the North American and European tyre market. Our analysis of the top 10 tyre manufacturers globally indicates that aggregate revenue is likely to grow by 5% and 6% in 2014 and 2015, respectively.

Aggregate revenue of top 10 tyre manufacturers expected to grow by 5% and 6% in 2014 and 2015, respectively

Valuation attractive Halcyon currently trades at a 2014E P/E of 9.4x and 2015E P/E of 6.5x, a significant discount to global tyre manufacturers and commodity traders despite its greater earnings visibility. Our target price of S$1.10 is based on a 2015E P/E of 9.0x, in line with its peers. On our estimates, it is trading at a 2015E P/B of 1.6x against expected ROE of 27.5%. In our view, successful execution of its planned capacity growth would drive re-rating.

Halcyon currently trades at a significant discount to its peers, despite its greater earnings visibility

Key risks would include dependence on raw materials from several large suppliers and a large number of small suppliers, which will be reduced with its planned expansion in Malaysia. Also, Halcyon's top five customers accounted for close to 90% historically. We expect its customer base to be more diversified with the acquisition of Chip Lam Seng, which has approvals to sell processed rubber to new customers like Hankook and Nexen.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

Halcyon Agri Corporation Ltd

HALC.SI / HACL SP

Price (02 Jan 14): S$0.80, Rating: OUTPERFORM, Target Price: S$1.10, Analyst: Louis Chua Target price scenario Scenario

TP

Upside

1.75

Central Case

1.10

Downside 0.51 Income statement (US$ mn) Sales revenue Cost of goods sold SG&A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash flow (US$ mn) EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash Balance sheet (US$ mn) Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liab. Total liabilities Shareholders' equity Minority interests Total liabilities & equity

%Up/Dwn Assumptions Based on 14.0x 2015 EPS, that of Palm 120.13 Oil Sector Average Based on 9.0x 2015 EPS, in line with peer 38.36 industries (35.85) Based on 1.0x 2015 BPS 12/12A 12/13E 12/14E 12/15E 222.0 208.0 630.0 945.0 202.0 186.7 584.6 880.1 6.4 8.2 11.4 13.9 (0.8) (0.7) (1.2) (7.0) 14.3 13.8 35.2 58.0 0.8 0.7 1.2 7.0 13.6 13.1 34.0 50.9 2.1 1.5 3.8 7.1 — — — — — — — — 11.5 11.6 30.2 43.9 — — — — 1.4 1.4 3.7 5.4 10.0 10.1 26.5 38.5 — — — — 0.18 — — — — — — — 9.9 10.1 26.5 38.5 — — — — 9.9 10.1 26.5 38.5 12/12A 12/13E 12/14E 12/15E 13.6 13.1 34.0 50.9 (1.0) (1.5) (3.8) (7.1) (0.3) (1.4) (3.7) (5.4) (4.6) (3.7) (71.1) (37.0) (0.3) 0.7 1.2 7.0 7.5 7.1 (43.4) 8.5 (0.5) (8.0) (91.1) (10.0) 6.9 (0.9) (134.5) (1.5) — — — — — — — — — — — — — — — — — — — — (0.5) (8.0) (91.1) (10.0) — 66.5 — — — (2.4) (3.2) (6.2) (3.3) 1.6 75.2 29.6 1.5 — — — (1.8) 65.8 72.0 23.4 5.1 64.9 (62.6) 21.9 (1.6) — — — 3.5 64.9 (62.6) 21.9 12/12A 12/13E 12/14E 12/15E 11.9 76.8 14.2 36.1 7.9 8.6 23.7 35.0 20.3 23.0 88.1 120.6 0.72 0.72 0.72 0.72 40.8 109.1 126.7 192.3 10.9 18.2 108.1 111.1 — — — — 10.0 10.0 10.0 10.0 0.36 0.36 0.36 0.36 62.1 137.7 245.2 313.8 1.6 — — — 28.1 29.7 104.9 134.5 0.98 0.98 0.98 0.98 4.0 5.2 14.3 21.1 34.7 36.0 120.2 156.6 — — — — 0.59 0.59 0.59 0.59 0.53 0.53 0.53 0.53 35.8 37.1 121.3 157.7 26.1 100.4 123.7 155.9 0.18 0.18 0.18 0.18 62.1 137.7 245.2 313.8

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

Key earnings drivers Volume (tonnes) GMP/tonne

12/12A 67,046 411.8 — — —

12/13E 80,000 375.0 — — —

12/14E 210,000 346.4 — — —

12/15E 270,000 362.6 — — —

Per share data Shares (wtd avg.) (mn) EPS (Credit Suisse) (US$)(US$) DPS BVPS (US$) Operating CFPS (US$) Key ratios and valuation Growth(%) Sales revenue EBIT Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x)

12/12A 246.0 0.04 0.01 0.11 0.03 12/12A

12/13E 308.5 0.03 0.01 0.25 0.02 12/13E

12/14E 396.0 0.07 0.02 0.31 (0.11) 12/14E

12/15E 396.0 0.10 0.02 0.39 0.02 12/15E

(4) 93 339 339

(6) (4) 3 (18)

203 160 161 104

50 50 45 45

6.46 6.11 5.17 4.45

6.63 6.29 5.56 4.87

5.59 5.40 4.80 4.20

6.13 5.39 4.64 4.07

15.6 5.92 1.31 20.7 1.12 17.3 18.3

19.1 2.47 1.29 27.2 0.89 13.4 14.2

9.4 2.01 2.51 (5.7) 0.51 9.2 9.5

6.5 1.59 3.77 29.3 0.35 5.7 6.5

45.8 29.0 3.57 0.85 0.88 2.36

16.0 23.9 1.51 0.88 0.88 1.37

23.6 22.2 2.57 0.89 0.88 1.98

27.5 19.0 3.01 0.86 0.88 2.01

61.8 1.13 6.49

(46.8) (3.41) 8.64

73.2 2.57 8.93

63.0 1.70 7.22

Source: Company data, Thomson Reuters, Credit Suisse estimates. 12MF P/E multiple 9.5 9.0 8.5 8.0 7.5 7.0 6.5 Oct-13

Nov-13

Dec-13

4

06 January 2014

Resilient business model Halcyon is a midstream player in the natural rubber supply chain, specialising in the production and marketing of processed natural rubber. Halcyon counts the leading global tyre manufacturers as its customers, such as Bridgestone and Cooper Tires. Its unique business model allows the company to maintain a stable annual Gross Material Profit (GMP) per tonne despite fluctuations in natural rubber prices. Despite rubber prices having more than halved since the beginning of 2011, annual GMP per tonne of Halcyon has been relatively stable at US$350-400/t. In addition, close to 75% of volumes are sold through long-term sales contracts, thus providing strong visibility on future volumes.

Stable annual GMP per tonne despite fluctuations in natural rubber prices, with strong visibility on volumes through long-term contracts

Leading producer in Indonesia’s largest rubber exporting area Halcyon Agri is a midstream player in the natural rubber supply chain, specialising in the production and marketing of processed natural rubber. The group owns and operates two rubber processing facilities (HMK1 and HMK2) with an expected annual production capacity of 153,000 tonnes by 2014. HMK1 and HMK2 are both located in Palembang, South Sumatra Province, Indonesia—the largest natural rubber exporting province in Indonesia.

Halcyon operates in the midstream segment of the natural rubber supply chain

Halcyon Agri produces Technically Specified Rubber (TSR) across a range of specifications, which conform to standardised quality parameters set by the National Standardisation Agency of Indonesia. Rubber slabs are sourced from a range of suppliers, primarily from South Sumatra, and processed into 35kg blocks of rubber, before being packed into 1,260kg units and shipped according to customer requirements. Halcyon Agri’s products are largely exported to the top 20 international tyre manufacturers, with key products produced being of the Standard Indonesian Rubber-20 (SIR 20) grade. Figure 7: Natural rubber supply chain

Upstream

Rubber Slabs

Midstream

TSR

Downstream

RSS Rubber Tree Plantations

Procurement

Vehicle Tyres Latex

Rubber Tapping

Processing

Gloves, latex products

Farm to factory logistics

Sales & Marketing

Industrial

Trading

Consumer

Source: Company data, Credit Suisse. *Red circles represent Halcyon Agri's involvement

The group seeks to differentiate itself from the majority of other rubber processors in Indonesia, by minimising its exposure to variations in market prices of natural rubber through the following: (1) Selling a high proportion of sales volume through long-term contracts (74% in 9M12): Provides greater visibility on volumes to be sold in the coming periods, thus allowing Halcyon to plan its procurement and production schedules better.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

(2) Contract pricing mechanism with variable pricing: Reduction in the impact of rubber price fluctuations, through matching of raw materials' purchase price with sales price. (3) Operating within a low risk position limit: Pricing risks mitigated through contract pricing mechanism and the matching of customer and supplier volumes.

(4) Dealing only with credit-worthy customers on attractive terms: Customers are leading global tyre manufacturers and trading houses, with payment period from 2 to 15 days upon delivery.

Profitability independent of rubber prices A key aspect of Halcyon's business model is that its profitability is independent of fluctuations in natural rubber prices. The indicative selling price through spot/long-term sales contracts is based on a premium over the prevailing SICOM TSR20 prices, depending on the product type involved. Similarly, raw materials prices, which represent the bulk of cost of sales, are typically at a discount to the prevailing SICOM TSR20 prices. Gross profits are thus driven by the volumes of natural rubber processed, given that margins on a per-tonne basis are relatively fixed. Figure 8: GMP vs sales volume

Figure 9: GMP vs GMP per tonne

11,000

25,000 19,926

19,122

18,672

8,000

19,362 20,000

600

15,000

13,897

6,000

449 415

373

7,000

8,076

7,762

4,000

5,726

4,624

8,658

10,000

300 9,596

5,000

5,000

3,000

8,076

7,762

4,000

6,211

500 400

408

375

331

6,000 9,596

5,000

504

9,000 8,000

16,534

15,355

7,000

3,000

11,000 10,000

10,000 9,000

Profitability is independent of fluctuations in natural rubber prices…

5,726

4,624

8,658

200

6,211 100

2,000

2,000 1,000

0 1Q12

2Q12

3Q12

4Q12

Gross material profit (US$ '000)

1Q13

2Q13

Sales volume (tonnes) (RHS)

Source: Company data

3Q13

1,000

0 1Q12

2Q12

3Q12

4Q12

Gross material profit (US$ '000)

1Q13

2Q13

3Q13

GMP per tonne (US$) (RHS)

Source: Company data

In addition to any hedging activity, gross margins are largely driven by the difference between the premiums charged to customers and discount given by suppliers over the prevailing market price, rather than the absolute price levels of rubber. This difference, as indicated by gross material profit (GMP) per tonne, is thus a better indicator of Halcyon Agri's value-addedness, and is affected by factors such as its pricing power over customers and procurement effectiveness. GMP per tonne may vary on a quarter-to-quarter basis due to seasonal and other quarterly fluctuations in the ordinary course of business. However, despite rubber prices having more than halved since the beginning of 2011, falling from $5,000/t in January 2013 to $2,300/t as at the end of September 2013, the GMP per tonne of Halcyon has been relatively stable across FY11 to 9M13 at about US$350-400/t, thus providing evidence that its profitability is not adversely affected by fluctuations in the market prices of rubber.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

…with GMP per tonne relatively stable at about US$350-400/t across FY11 to 9M13

6

06 January 2014

Figure 10: GMP per tonne vs market price of rubber $/t

GMP/t (US$)

6,000

600.00

5,000

500.00

4,000

400.00

3,000

300.00

2,000

200.00

1,000

100.00

-

0.00

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

SICOM - TSR20

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Quarterly GMP/t

Source: Bloomberg, Company data, Credit Suisse. *2011 GMP/t based on FY11

Majority of volumes based on long-term contracts In addition, a significant proportion of Halcyon's volumes is sold through long-term sales contracts (74% of volumes sold in 9M12). The volume, delivery schedule and pricing (based on SICOM TSR20 prices) are contracted on a long-term basis of up to 12 months, thus providing greater visibility on future volumes.

Significant proportion of volumes sold through longterm contracts, providing strong visibility on volumes

Established customer base Halcyon Agri's customer base consists of international tyre manufacturers, as well as international trading houses, with the group seeking to sell the majority of its volumes to end-users, particularly those with a specific requirement for SIR20-VK. Historically, Cooper Tire has been the largest customer of Halcyon Agri.

Established customer base comprising international tyre manufacturers and trading houses

Figure 11: Customers accounting for more than 5% of total revenue (%) Cooper Tire Bridgestone Sri Trang International New Continent Enterprise Marubeni Continental Total

9M10

9M11

9M12

72.8 7.6 17.2 97.6

48.7 7.5 16 9.5 14.9 96.6

38.8 13.7 13.1 12.9 9.3 87.8

Source: Company data, Credit Suisse

Leading tyre manufacturers, however, have a rigorous qualification programme to ensure that their output meets the standards required. Typically, such qualification processes take up to 12 months depending on the tyre manufacturer, and involve a range of tests, including on-site inspections. Currently, Halcyon Agri is an approved supplier to the following tyre manufacturers, with Bridgestone, Continental and Goodyear together representing 49% of the global tyre market share: ■

Bridgestone

■

Ceat India

■

Continental

■

Cooper Tire

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

■

Goodyear

■

JK Tyre India

■

Kumho

■

Sumitomo Tyre

■

Toyo Tires

Experienced management team Halycon Agri is led by an experienced management team, with its Directors, Chief Commercial Officer and Heads of Production and Procurement each having at least 25 years of experience in the natural rubber and/or tropical agri-commodities industries. Mr Andrew Trevatt, Chief Commercial Officer was most recently a trading manager at Louis Dreyfus and has 26 years of experience in natural rubber while Mr Leonard Beschizza, Director of Operations, has been in the natural rubber and agricultural industry for about 40 years. Mr James Bugansky, recently appointed Technical Director in October 2013, has more than 34 years of experience in natural rubber processing and plantations, having worked in Goodyear, Bridgestone, Firestone and GMG Global.

Management team has deep experience in the natural rubber and/or tropical agri-commodities industries

Mr Alex Kurniawan Edy, Halcyon Agri's Head of Production in Palembang has been involved in the natural rubber industry for 20 years and has been exclusively employed in relation to HMK1&2, while Mr Rachman Rachmadi, Halcyon Agri's Head of Procurement in Palembang too has been closely involved with the operations of HMK1 and HMK2 for 25 years, and has over 40 years of experience in the natural rubber industry. Figure 12: Key management Board of Directors

Executive Chairman and CEO, Robert Meyer

Director of Operations Palembang, Leonard Beschizza

Chief Commercial Officer, Andrew Trevatt

Technical Director, Mr. James Ronald Bugansky

CFO, Ng Eng Kiat

Head of Production Palembang, Alex Kurniawan Edy

Head of Procurement Palembang, Rachman Rachmadi Source: Company data, Credit Suisse

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

Capacity expansion to drive earnings growth Through capacity expansion in Malaysia and Indonesia, we expect sales volume to increase from 80,000t in 2013 to 305,000t in 2016. The existing production facilities located in Palembang, Indonesia, were originally acquired in 2010. Expansion and upgrading of existing facilities is expected to add 60,500 tonnes per annum of production capacity by 2014. With the acquisition of Chip Lam Seng (CLS) in Malaysia and PT Golden Energi in Indonesia, Halcyon Agri’s potential annual production capacity would more than quadruple by 2015 from 92,000 tonnes per annum in 2012. With GMP/tonne expected to stay above US$350, we forecast net profit to quadruple from US$10 mn in 2013E to US$41 mn in 2016E.

Capacity expansion to lead net profit to quadruple to US$41 mn in 2016E from US$10 mn in 2013E

Existing production facilities in Indonesia The existing production facilities, HMK1 and HMK2, were acquired from PT Perusahaan Getah Para Muara Kelingi, one of the group's suppliers of processed rubber, in 2010 while the group was still primarily involved in the rubber trading business. Both production facilities are ISO 9001 certified and fully mechanised, with in-house laboratories to monitor product quality, as well as environmental performance metrics daily. Both facilities are located on the banks of the Musi River in Palembang, Indonesia, which provides direct access to the Boom Baru port for ease of export. Being located in the South Sumatra Province, Indonesia, also allows for easy access to rubber trees from which raw materials are sourced. Total production capacity of the existing facilities is dependent on the number of Wet-Lines and Dry-Lines installed, the number of shifts worked each day, and downtime for routine repairs and maintenance. The facilities are currently operating based on three eight-hour shifts per day, six days a week. Figure 13: Historical capacity and utilisation of HMK1 and HMK2 Maximum capacity (tonnes)

Production volume (tonnes)

Utilisation rate (%)

82,460 92,380

45,286 67,317

55% 73%

2011 2012

Source: Company data, Credit Suisse

Utilisation rates have improved from 55% in 2011 to 73% in 2012 as a result of increased rubber demand and process optimisation initiatives to reduce critical equipment downtime. The addition of an additional wet-line at HMK2 and further expansion of existing facilities is expected to add 10,500 tonnes per annum and 50,000 tonnes per annum of production capacity, respectively, by 2014. Figure 14: HMK1 and HMK2—capacity and volume assumptions Maximum capacity (tonnes) Volume (tonnes) Utilisation (%)

2013E

2014E

2015E

2016E

102,880 80,000 78%

152,880 100,000 65%

152,880 120,000 78%

152,880 125,000 82%

Source: Company data, Credit Suisse estimates

Recent acquisitions Halycon Agri has announced the following planned acquisitions to expand its production capacity in Indonesia, as well as to extend its foothold in Malaysia, with the acquisitions expected to close in 1Q14.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

9

06 January 2014

■

June 2013: Proposed acquisition of Chip Lam Seng for RM63 mn (natural rubber processing in Malaysia with 180,000 tonnes annual production capacity); conditions precedent relating to the acquisition satisfied in full on 30 December 2013.

■

September 2013: Signed term sheet to acquire JFL Agro Pte Ltd for RM143 mn (24,327 acres of land in Malaysia to develop natural rubber plantations); pending environmental assessment in Malaysia, with date of completion by 31 March 2014.

■

September 2013: Acquisition of 95% of PT; Golden Energi for US$7 mn (rubber processing facility in Indonesia); pending licensing requirements in Indonesia, with date of completion by 30 January 2014.

With the acquisition of Malaysian natural rubber producer Chip Lam Seng (CLS), which operates two natural rubber factories in Ipoh, Malaysia, and the acquisition of PT Golden Energi, Halcyon Agri’s potential annual production capacity would more than quadruple by 2015 from 92,000 tonnes per annum in 2012.

Potential annual production capacity to more than quadruple by 2015

Figure 15: Potential production capacity of Halycon Agri ('000 tonnes) 383

383

36

50

50

180

180

180

153

153

153

2014E

2015E

2016E

400

369

350 300 250 200 150 103

100

82

92

50

82

92

103

2011

2012

2013E

HMK1 & HMK2

Chip Lam Seng

Golden Energi

Source: Company data, Credit Suisse estimates

Chip Lam Seng – A transformational acquisition The addition of two rubber processing factories of CLS, with a combined 180,000 tonnes per annum capacity will allow Halycon Agri to rapidly expand its production scale and capabilities, thus reaping significant economies of scale.

Additional of a significant 180,000 tonnes annual capacity in a new geography

Through the acquisition, Halcyon is able to immediately gain a foothold in the Malaysian rubber industry through two modern factories completed in 2004 and 2008, with an eventual aim of becoming the largest natural rubber business in Malaysia over five years. In addition, diversification benefits will accrue through producing both Malaysian- and Indonesian-origin rubber. SMR typically attracts a premium to SIR, and the acquisition will allow Halycon Agri to produce various higher grades of rubber at attractive price premiums. At present, approvals are currently held for the following leading tyre manufacturers, some of which are new customers for Halcyon: ■

Hankook

■

Kumho

■

Nexen

■

Goodyear

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

10

06 January 2014

■

GT Tyres

■

Other Chinese tyre manufacturers

We expect capacity utilisation to ramp up gradually over the next three years, as Halcyon establishes both its network of suppliers in the local and overseas markets, and gradually attains accreditation from leading tyre manufacturers for its newly acquired factories. Figure 16: Chip Lam Seng—capacity and volume assumptions Maximum capacity (tonnes) Volume (tonnes) Utilisation (%)

2014E

2015E

2016E

180,000 85,000 47%

180,000 115,000 64%

180,000 145,000 81%

Source: Company data, Credit Suisse estimates

JFL Agro – Entry into the upstream segment 9,728 hectares of sultanate land in Malaysia (97 year lease remaining) will be acquired and developed into a natural rubber plantation, through the acquisition of JFL Agro. This enables Halcyon to move up the value chain, earning the upstream segment, which typically earns a higher margin.

Long-term entry into the upstream segment through rubber plantations

Figure 17: Valuation of JFL Agro Valuation Plantable area Unplantable area Planted palm area Total land size Acquisition price

Hectares

per Hectare (MYR)

Total (MYR m)

7,144 2,584 197 9,728

17,300 5,683 46,200

123.6 14.7 9.1 145 143.2

Source: Company data, Credit Suisse

The acquisition is complementary to Halcyon's rubber processing facilities in Malaysia, potentially providing up to 10% of the required raw materials when the plantations are fully matured. Though representing only a minority of CLS's needs, the rubber plantations will enhance Halcyon's ability to procure raw materials and provide useful feedback on the state of rubber plantations in Malaysia. Given the long gestation period of the investment, with rubber plantations typically requiring six to seven years to reach maturity, we have not factored in any contributions from JFL Agro in our projections. Further, through the sale of palm oil products from the 197 acres of planted oil palm, any operational expenses associated with the development of the rubber plantations are likely to be offset. PT Golden Energi – Bolt on acquisition Located in Jambi Province, Indonesia, PT Golden Energi represents an incremental ‘bolt on’ acquisition, which enables Halcyon to leverage on its established Indonesian operations and know-how. With a license to export 50,000 tonnes of natural rubber per year, the factory, which was built in 2010, is capable of producing SIR-20 rubber. Post acquisition, we understand that capex will be incurred to upgrade and calibrate the existing machinery in the factory. Our assumptions for Golden Energi are as follows:

‘Bolt on’ acquisition to leverage on Halcyon's established Indonesian operations

Figure 18: Golden Energi—capacity and volume assumptions Maximum capacity (tonnes) Volume (tonnes) Utilisation (%)

2014E

2015E

2016E

36,000 25,000 69%

50,000 35,000 70%

50,000 35,000 70%

Source: Company data, Credit Suisse estimates

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

11

06 January 2014

Rapid capacity and volume growth to drive earnings growth Following the completion of the acquisitions and the capacity expansion at HMK1&2, the total potential capacity of Halcyon stands at up to 382,800 tonnes per annum across Indonesia and Malaysia. A summary of the production facilities of Halycon is as follows: Figure 19: Production facilities of Halcyon Factory

Date acquired 2-Feb-11

Location

Golden Energi

1Q14

Chip Lam Seng

1Q14

HMK1 & HMK2

Capacity (tonnes) 152,880

Products

Notes

SIR-20, SIR20VK, SIR20Compound

Sarolangun, Jambi, Indonesia

50,000

SIR-20

- Approx. 50 & 30 year history for HMK1 & HMK2 - Renovation and replacement undertaken in HMK1 - Additional wet-line constructed in HMK2 in Sep 12', fully operational since Jan 13' (10,500 tonnes p.a.) - Further S$8.5mn 50,000 tonnes p.a. capacity expansion to be completed by mid-2014 - Announced US$7 mn acquisition of PT Golden Energi in Sep 13' - Significant opportunities for expansion/improvement

Chemor, Ipoh, Malaysia

180,000

SMR(5, 10, 20), CV, Latex, Compound, CV50

Palembang, South Sumatra, Indonesia

- Announced RM63 mn acquisition of CLS in Jun 13' - Factory 1 and 2 completed in 2004 and 2008

Source: Company data, Credit Suisse estimates

We expect utilisation to fall in 2014 before improving gradually to 80% in 2016, given the time required for the ramp up of production capacity at CLS and Golden Energi. However, absolute volume growth remains robust, with volumes likely to grow from 67,046 tonnes in 2012 to 305,000 tonnes in 2016 given the significant capacity additions coupled with improving utilisation over time. With GMP per tonne expected to stay above US$350, we forecast net profit to quadruple from US$10 mn in 2013E to US$41 mn in 2016E. We expect net profits in 2013 to grow marginally from US$9.9 mn in 2012 to US$10.1 mn in 2013, due to the impact of nonrecurring expenses (IPO expenses, acquisition related expenses and professional fees incurred in 2013) and higher general and administrative expenses as Halcyon scales up its business as its expansion plans are implemented. Thereafter, growth in contributions from CLS and Golden Energi is expected to lead the growth in profits to US$26.5 mn in 2014E and US$41.2 mn in 2016E.

We expect profit to grow to US$41 mn in 2016 from US$10 mn in 2013E

Given the clear visibility on Halcyon's volume growth trajectory and its stable business model, we believe that the earnings growth will likely be sustainable going forward. Figure 20: Volume growth to follow capacity expansion

Figure 21: Robust earnings growth driven by volumes

('000 tonnes) 400

100%

(US$ '000) 80,000

350

88%

70,000

350

300

75%

60,000

300

250

63%

50,000

250

200

50%

40,000

200

38%

30,000

150

25%

20,000

100

13%

10,000

50

150

270

100 50

-

305

210

47

67

2011

2012

80

0% 2013E Volumes

2014E Utilisation (%) (RHS)

Source: Company data, Credit Suisse estimates

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

2015E

2016E

('000 tonnes) 400

-

2011

2012

2013E

Gross profits (US$ '000)

2014E

2015E

Net profits (US$ '000)

2016E Volumes

Source: Company data, Credit Suisse estimates

12

06 January 2014

Beneficiary of rising natural rubber demand Halcyon is a beneficiary of rising demand for natural rubber, which is expected to grow 53% from 10.9 mn tonnes in 2011 to 16.7 mn tonnes in 2021, representing a CAGR of 4.4%. This is driven mainly by an expanding tyre market, which is the largest consumer of natural rubber, accounting for about 70% of total demand. The tyre market has defensive growth characteristics as the replacement market makes up for 70% of total tyre demand. In the medium term, rubber demand is likely to be supported by steady growth in the Chinese tyre market and a recovery in the North American and European tyre market. Our analysis of the top 10 tyre manufacturers globally indicates that aggregate revenue is likely to grow by 5% and 6% in 2014 and 2015, respectively.

Aggregate revenue of top 10 tyre manufacturers to grow by 5% and 6% in 2014 and 2015, respectively

Growth in rubber demand driven by expanding tyre market Natural rubber is used in various industrial and consumer applications such as examination gloves, hydraulic hoses and conveyor belts, but the most significant source of end-demand is the tyre industry. The tyre industry is the largest consumer of natural rubber, accounting for approximately 70% of natural rubber demand. Natural rubber is a critical ingredient in tyre manufacturing due to its superior properties such as elasticity, anti-tearing and low heat generation amongst others, and is not easily substitutable by synthetic rubber. As a result, there has been an established relationship between natural rubber consumption vs tyre sales, as seen in Figure 23. Figure 22: Natural rubber demand by end use

Figure 23: Natural rubber consumption vs tyre sales (mn tonnes) 20

Other uses 17% Latex 13%

Tyre 70%

(mn units) 3,000

16

2,400

12

1,800

8

1,200

4

600

0

0 2000200120022003200420052006200720082009201020112012201320142015201620172018201920202021 Natural rubber consumption

Source: IRSG, Credit Suisse

Total tyre sales (RHS)

Source: IRSG, Credit Suisse

Based on estimates by the International Rubber Study Group (IRSG), the forecast worldwide consumption of natural rubber is expected to grow 53% from 10.9 mn tonnes in 2011 to 16.7 mn tonnes in 2021, representing a CAGR of 4.4%.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

13

06 January 2014

Figure 24: Forecast consumption of natural rubber (mn tonnes) 18 16 14 12

10.9

11.2

2011

2012

11.7

12.3

13

13.7

14.3

14.7

2017

2018

16

15.3

16.7

10 8 6 4 2 0

2013

2014

2015

2016

2019

2020

2021

Consumption (mn tonnes)

Source: IRSG, Credit Suisse

Tyre market has defensive growth characteristics The demand for tyres comes from both the sale of new vehicles (Original Equipment Market sales) and the replacement of tyres in existing motor vehicles due to wear and tear. The replacement market dominates the tyre market at 70% of total tyre demand, and relates to the existing world population of motor vehicles at more than 1 bn units.

70% of tyre demand is based on replacement demand

On average, private cars require four new tyres every two years, while industrial and commercial vehicles require more frequent replacement. The IRSG expects world vehicle sales to hit 84 mn units in 2012, representing a combined annual tyre market in excess of 1.6 bn units. Given the significant share of recurring demand, coupled with recovering OEM sales, the global tyre market can be characterised as that of a defensive growth sector. Figure 25: Replacement market dominates tyre demand

Figure 26: Historical and forecast tyre sales (mn units) 3,000

2,500

Original equipment market 30%

2,000 1,500 1,000

Replacement market 70%

500 2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Total tyre sales (RHS)

Source: IRSG, Credit Suisse

Source: IRSG, Credit Suisse

China demand steady, recovery in North America and Europe will likely continue China, which overtook the US as the world's largest auto market in 2010, has seen steady growth in its domestic tyre market, with YTD growth at +12%/+8% for OEM/Replacement demand. Coming off a difficult 2012, North American tyre demand has seen a steady and gradual recovery since 2Q13, with YTD growth at +5%/+4% for OEM/Replacement demand. The European market remains comparatively weaker, but demand in recent

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

14

06 January 2014

months has since recovered with positive YoY growth observed in both the OEM and replacement markets. With overall tyre demand recovering in both North America and Europe, coupled with strong emerging market growth led by China, we believe the global tyre market is set to grow at a steady pace in the medium term. Figure 27: Passenger car OEM demand

Figure 28: Passenger car replacement demand

(YoY, %)

(YoY, %)

60.0

40.0

50.0

30.0

40.0 20.0

30.0 20.0

10.0

10.0

0.0

0.0 -10.0

-10.0 -20.0

China

Source: Michelin, Credit Suisse

Europe

Oct-13

Nov-13

Sep-13

Jul-13

Aug-13

Jun-13

Apr-13

May-13

Jan-13

Feb-13 Mar-13

Dec-12

Oct-12

North America

Nov-12

Sep-12

Jul-12

Aug-12

Jun-12

Apr-12

May-12

Mar-12

Jan-12

Feb-12

Oct-13

Nov-13

Sep-13

Jul-13

Aug-13

Jun-13

Apr-13

Europe

May-13

Jan-13

Feb-13 Mar-13

Dec-12

Oct-12

North America

Nov-12

Sep-12

Jul-12

Aug-12

Jun-12

Apr-12

May-12

Mar-12

Jan-12

Feb-12

-20.0

China

Source: Michelin, Credit Suisse

Bottom up sales forecast supportive of growth in tyre demand We perform a bottom-up analysis of the top 10 tyre and rubber manufacturers globally, as measured by 2012 revenues. Consensus is expecting aggregate revenues to grow at a steady 4% CAGR from US$129 bn in 2008 to US$177 bn in 2015, off its 2009 low of US$110 mn. Aggregate revenue is likely to grow by 5% and 6% in 2014 and 2015, respectively.

Aggregate revenue of top 10 tyre manufacturers is likely to grow by 5% and 6% in 2014 and 2015, respectively

Despite the macroeconomic uncertainty in recent years, YoY revenue growth continues to be seen in 2012 and is likely to persist in 2013–15. This is against a backdrop of falling rubber prices from a peak of US$5,750/tonne in February 2011 to US$2,265/tonne as of 31 December 2013, with future rubber prices expected to remain flat going forward. Revenue growth for the tyre manufacturers is thus backed by steady volume growth, thus corroborating our claim of the tyre industry being a defensive growth sector. Figure 29: Industry revenue of top 10 tyre manufacturers vs natural rubber prices (US$/tonne)

(US$ bn) 200

6,000

180

5,000

160

4,000

140

3,000

120

2,000

100

1,000

80

0 2008

2009

2010

2011

Industry Sales

2012

2013E

2014E

2015E

Average SICOM - TSR20 price (RHS)

Source: Company data, Bloomberg, IBES estimates, Credit Suisse; *2014 price as indicated by futures price

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

15

06 January 2014

Valuation attractive Halcyon currently trades at 2014E P/E of 9.4x and 2015E P/E of 6.5x, a significant discount to global tyre manufacturers and commodity traders despite its greater earnings visibility. Our target price of S$1.10 is based on a 2015E P/E of 9.0x, in line with its peers. Figure 30: 2015E P/E (x) peer comparison

Halcyon currently trades at a significant discount to its peers, despite its greater earnings visibility

2015 P/E (x) 16.0 14.1 14.0 12.0

10.4

10.0 8.0

6.5

8.8

9.0

Global Tyres Avg

Halcyon Agri (based on TP)

7.0

6.0 4.0 2.0 0.0 Halcyon Agri

Sri Trang Agro

Supply Chain Managers Avg

Palm Oil Avg

Source: Company data, Credit Suisse estimates, IBES estimates

We believe that Halcyon warrants a higher valuation for the following reasons: ■

Global tyres: Given that 70% of the demand for natural rubber arises from the tyre industry, the prospects of natural rubber processors such as Halcyon are exposed to the same end market demand and industry prospects. Unlike tyre manufacturers which are sensitive to both raw material prices and end product price competition, Halcyon's profitability is independent of natural rubber prices, and as a result is less risky relative to tyre manufacturers.

■

Supply chain managers: We acknowledge the vast difference in scale and diversification of the supply chain managers vis-à-vis Halcyon. Historically though, supply chain managers played a "middleman" role of buying and selling commodities, acting on imbalances between supply and demand. To this extent, the role of Halcyon as a midstream processor is not dissimilar to that of the supply chain managers, aggregating supply from large smallholder plantations, processing them before delivering them to demand centres. Critically however, the earnings visibility for Halcyon is much greater compared to that of the supply chain managers.

■

Palm Oil: The global natural rubber industry is a US$33 bn p.a. business, second only to palm oil as the largest tropical agriculture crop. Palm oil players are typically vertically integrated, with significant exposure to the upstream plantation business and thus are leveraged to palm oil prices. Further, the competitiveness of palm oil is dependent on crude oil prices (palm-biodiesel) and other oilseeds such as soybean oil. Given Halcyon's midstream exposure and independence to commodity price volatility, we believe that the rubber industry should not trade at the current >50% discount to palm oil players.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

16

06 January 2014

Figure 31: Valuation summary

Ccy

Rubber: Halcyon Agri Sri Trang Agro Rubber Avg

O N.R.

SGD THB

0.80 12.40

1.10 N.R.

232 376 304

19.1 10.6 14.8

9.4 7.9 8.7

6.5 7.0 6.7

2.5 0.8 1.6

2.0 0.8 1.4

1.6 0.7 1.2

16.0 8.1 12.1

23.6 10.1 16.9

27.5 10.8 19.2

1.3 3.4 2.3

0.2 0.4 0.3

Global Tyres: Bridgestone Sumitomo Rubber Industries Cheng Shin Rubber Michelin Goodyear Tire Pirelli and C Cooper Tire Rubr Continental Toyo Tire & Rub Yokohama Rubber Hankook Tire S Giti Tire Apollo Tyres Global Tyres Avg

O N O N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.

JPY JPY TWD EUR USD EUR USD EUR JPY JPY KRW CNY INR

3,980 1,494 78 76 24 12 24 158 599 1,033 59,900 13 103

4,500 1,500 98 N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R. N.R.

29,735 3,741 8,457 19,279 5,809 8,110 1,562 43,062 1,454 3,378 7,065 752 832 10,249

11.3 9.3 13.7 10.4 9.4 16.0 10.2 14.2 11.1 9.0 9.4 17.5 7.4 11.5

10.2 8.9 12.0 9.3 8.4 13.2 7.9 12.6 6.8 8.8 8.9 15.4 6.7 9.9

9.4 8.2 10.9 8.2 6.9 11.3 5.9 11.5 6.5 8.3 8.1 13.8 5.9 8.8

1.8 1.4 3.3 1.5 5.3 2.2 1.5 3.2 1.3 1.4 1.9 4.6 1.4 2.4

1.6 1.3 2.9 1.3 3.5 2.0 1.2 2.7 1.1 1.3 1.6 3.6 1.2 1.9

1.4 1.1 2.5 1.2 2.4 1.8 1.0 2.3 0.9 1.1 1.3 2.9 0.9 1.6

17.6 16.1 26.8 15.4 113.8 14.8 20.4 23.8 10.1 16.3 22.0 29.3 19.1 26.6

16.3 14.9 25.6 15.5 52.9 16.5 17.7 22.7 18.2 14.8 19.2 26.4 17.9 21.4

15.6 14.5 24.5 15.6 40.4 17.4 18.7 21.3 14.0 14.1 17.7 23.7 17.0 19.6

1.4 2.3 1.9 3.1 0.2 2.6 2.0 1.6 1.8 2.1 0.8 1.2 0.7 1.7

0.4 0.8 0.8 1.8 0.3 1.0 0.9 2.1 0.3 1.0 0.1 n.a. 0.4 0.8

N N O U N N

USD USD GBp SGD SGD SGD

42.99 81.92 310.50 1.07 1.52 3.39

R 84.00 4.00 0.90 1.50 3.73

28,544 12,062 67,750 5,596 2,930 17,130 22,336

19.5 13.1 17.2 14.8 10.3 13.1 14.7

12.8 11.5 14.4 12.3 8.4 12.5 12.0

12.6 9.9 11.7 9.8 7.1 11.5 10.4

1.5 1.1 1.3 1.0 1.0 1.1 1.2

1.3 1.1 1.3 1.0 0.9 1.0 1.1

1.2 0.8 1.2 0.9 0.9 0.9 1.0

7.8 8.4 9.5 7.0 10.4 8.8 8.7

10.7 9.6 9.0 8.0 11.7 8.4 9.6

9.9 10.4 9.4 12.8 8.4 10.2

1.8 1.4 3.1 1.7 2.8 1.9 2.1

0.8 0.4 n.n. 1.7 0.4 1.7 1.0

14,066

12.5

10.6

9.3

2.0

1.7

1.4

20.9

17.7

17.0

1.8

0.9

17,361 9,024 7,903 5,053 2,490 5,572 2,738 1,331 1,017 3,195 1,028 1,067 471 319 4,183

16.2 16.7 25.4 28.5 30.9 21.4 14.0 22.3 28.2 23.9 42.7 28.6 37.4 36.8 26.6

15.5 14.7 23.1 16.6 18.9 13.5 12.3 16.0 16.2 15.9 17.0 16.5 21.3 15.6 16.6

13.6 13.0 19.8 15.9 15.3 11.2 11.0 14.1 14.1 14.7 14.5 13.5 14.3 12.8 14.1

1.9 2.1 3.3 2.6 2.2 0.6 2.3 2.9 0.9 4.1 0.9 2.1 2.8 1.5 2.2

1.7 1.9 2.9 2.5 2.0 0.6 2.0 2.5 0.8 3.5 0.9 1.9 2.5 1.4 1.9

1.6 1.8 2.5 2.3 1.8 0.6 1.8 2.2 0.8 3.1 0.8 1.7 2.2 1.3 1.7

12.6 12.9 13.6 9.4 7.5 3.0 17.2 13.9 3.1 17.5 2.2 7.2 7.9 4.0 9.4

11.8 13.7 13.4 15.3 11.1 4.7 17.2 16.9 5.3 23.7 5.3 12.0 12.5 9.1 12.3

12.3 14.4 13.7 15.0 12.2 5.4 17.0 16.4 5.8 22.2 5.9 13.3 16.3 10.3 12.9

3.3 2.7 2.1 2.1 0.9 1.8 2.7 0.5 1.7 3.1 2.7 3.4 0.7 3.0 2.2

6.2 1.4 2.7 1.8 0.9 1.6 1.9 0.9 n.n. 4.9 n.n. n.n. 1.0 n.n. 2.3

9,326

18.3

12.9

11.1

2.0

1.8

1.5

15.8

15.5

15.4

2.0

1.3

Peer Group Avg Palm Oil: Sime Darby IOI Corporation Kuala Lumpur Kepong Felda Global Ventures Genting Plantations Bhd Golden Agri-Resources First Resources Ltd Bumitama Agri Limited Indofood Agri Resources Ltd PT Astra Agro Lestari Tbk Salim Ivomas Pratama PT London Sumatra Indonesia PT BW Plantation Tbk Sampoerna Agro Tbk Palm Oil Avg

O N U N N O O N U O U N U U

MYR MYR MYR MYR MYR SGD SGD SGD SGD IDR IDR IDR IDR IDR

9.49 4.60 24.32 4.55 10.78 0.55 2.19 0.96 0.89 24,650 790 1,900 1,320 2,050

Overall Avg

10.70 4.30 20.00 4.67 10.28 0.66 2.80 1.00 0.61 26,500 510 1,300 870 1,300

Mkt Cap PE (x) (US$ mn) (13E)

PE (x) (14E)

PE (x) (15E)

PB (x) (13E)

PB (x) (14E)

PB (x) ROE (%) ROE (%) ROE (%) (15E) (13E) (14E) (15E)

PEG (x) (15E)

Rating

Supply Chain Managers: Archer Daniels Midland Inc. Bunge Limited Glencore Xstrata PLC Noble Group Ltd Olam Wilmar International Ltd Supply Chain Managers Avg

Target price

Div yield (%) (13E)

Current price

Source: Company data, Credit Suisse estimates for covered companies, IBES estimates

Valuation relative to natural rubber peer Given the lack of rubber processing peers in the market, we believe that investors may focus on the relative valuation of Halcyon to Sri Trang Agro (STA). STA is a Thai-based integrated natural rubber company, with a market share of 9% of global consumption of natural rubber. A significant proportion of STA's earnings are derived through its midstream processing business in Thailand, and is thus a direct peer to Halcyon apart from their different geographical operations. Operational comparison An experienced management team helms both Halcyon and STA, with both companies owning established processing facilities with an extensive operating history. Halcyon's HMK1 and HMK2 facilities have been in operation for more than 50 years and 30 years, respectively, while STA has been in operation for about 26 years.

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However, profitability is a key differentiating factor between the two companies, despite their similar position in the value chain. As a basis of comparison, we use consensus estimates to derive the financials of STA, comparing them alongside our estimates of Halcyon. Against a backdrop of a difficult operating environment with falling natural rubber prices, Halcyon has been able to improve its gross margins from 4.3% in FY11 when it first started its processing operations to 9.0% in FY12 and an estimated 10.2% in FY13, while STA has seen relatively flat GP margins between 4.3% and 5.0%. Net margins show a similar trend, where Halcyon has been able to consistently earn a higher margin vs STA.

Profitability is a key differentiating factor of Halcyon relative to STA, with Halcyon able to improve its margins against a backdrop of falling natural rubber prices

Although margins at Halcyon are expected to dip slightly with the ramp up of its newly acquired processing facilities in Malaysia and Indonesia, we believe that Halcyon's ability to grow its profitability regardless of market prices of rubber is a key strength which should not be overlooked. Figure 32: GP margin comparison vs. rubber prices 12.0

Figure 33: Net margin comparison vs. rubber prices 6,000

6.0

5,000

5.0

6,000

10.2 10.0

9.0

8.0

7.2

6.0 4.3

5.3

5.0

4.8

4.3

6.9 5.3

4.0 2.0 0.0 FY11

FY12

Halcyon GP margin (%)

FY13E

FY14E

Sri Trang GP margin (%)

4.9

5,000

4.4

4.2

4.1

4,000

4.0

4,000

3,000

3.0

3,000

2,000

2.0

1,000

1.0

-

0.0

FY15E

1.9

2,000 1,000 -

FY12

Halcyon net margin (%)

Source: Company data, Credit Suisse estimates, IBES estimates

1.6

1.0

FY11

Average SICOM - TSR20 price ($/tonne) (RHS)

1.7

1.5

1.4

FY13E

FY14E

Sri Trang net margin (%)

FY15E

Average SICOM - TSR20 price ($/tonne) (RHS)

Source: Company data, Credit Suisse estimates, IBES estimates

Valuation comparison Where consensus is expecting STA's ROE to grow marginally from 8.1% in FY13E to 10.8% in FY15E, we expect Halcyon's ROE to improve considerably, from 16.0% in FY13E to 27.5% in FY15E, with the recent acquisitions projected to start contributing to Halcyon's earnings from FY14E. With a 2015E ROE of 27.5% against a P/B of 1.6x for Halcyon, relative to a ROE of 10.8% against a P/B of 0.7x for STA, we believe that there is scope for Halcyon to re-rate. Figure 34: P/B vs. ROE comparison 30.0

Figure 35: Summary of 2015E valuation comparison 3.0

30.0

2.5

25.0

2.0

20.0

1.5

15.0

1.0

10.0

5.0

0.5

5.0

0.0

0.0

0.0

27.5 23.6

25.0

20.0

27.5

16.0 15.0 10.1 10.0

10.8

8.1

10.8 7.0

6.5

1.6 FY13E Halcyon ROE (%)

FY14E Sri Trang ROE (%)

FY15E Halcyon P/B (x) (RHS)

Sri Trang P/B (x) (RHS)

Source: Company data, Credit Suisse estimates, IBES estimates

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

P/E (x)

0.7 P/B (x)

Halcyon

ROE (%)

Sri Trang

Source: Company data, Credit Suisse estimates, IBES estimates

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HOLT® view Figure 36: HOLT view on Halcyon Agri CFROI % (Economic Returns)

Sales Growth % Market Implied Scenario Commercial Services & Supplies, Singapore Price (Dec 31, 2013)

Asset Growth %

EBITDA Margins %

0.76 SGD 0.199 USD

Market Cap (bil)

Risk

Total Shareholder Return

Asset Turns (Sales/ Invested Capital)

Probability of Default

0%

Average Credit Rating

NA

Good

Accounting Quality

Momentum

6m

3m

1m

CFROI Revisions

0.19

0.19

0.19

Price Change %

15.15

-2.56

4.83

Source: Company data, Credit Suisse HOLT®

Historical operations Since acquiring the two Indonesia processing facilities in 2010, Halcyon was able to significantly improve its operating performance as evidenced by the sharp CFROI® improvement by 2012. Improvement was attributed to higher gross margins despite the drop in natural rubber prices, which caused a decline in revenue. Market expectations Assuming a 25% CAGR on asset base (in line with Halcyon's stated goal of tripling processing capacity in the next few years) and based on the IBES consensus 12-month forward EPS, Halcyon's CFROI is expected to drop to around 19% in 2014. The stock is currently priced for CFROI to further decline to only 6% by 2018, which is comparable to the average CFROI achieved by more mature players such as Sri Trang. Such expectation looks low for Halcyon, given Halcyon's resilient business model and its track record of adding value to processing facilities. Halcyon's valuation (economic P/E of 12x) is also at a discount to Sri Trang’s 25x. Upside scenario If Halcyon can maintain a medium-term CFROI of 9%, which is in line with its 2011 CFROI level, there is a 44% upside.

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Key risks Dependent on key management staff Halycon Agri is led by an experienced management team, with its Directors, Chief Commercial Officer and Heads of Production and Procurement each having at least 25 years’ experience in the natural rubber and/or tropical agri-commodities industries. Being a relatively young company, continued success and smooth execution of Halcyon’s strategy will thus be dependent on the ability to retain its key management staff, as well as the ability to attract and train new managers, given the strong growth trajectory of the company. However, we believe that Halcyon's ability to attract experienced managers from its competitors thus far, and the healthy bench strength of junior managers is a positive sign for the company.

Dependent on steady raw material supplies Halcyon sources raw materials from a large number of small suppliers as well as several larger suppliers, among which Koperasi Serba Usaha Mitrajaya and Cipta Karya Tani accounted for a significant 42.1% and 12.8% of purchases in 9M12. Figure 37: Key suppliers to Halcyon Koperasi Serba Usaha Mitrajaya Cipta Karya Tani PT Perusahaan Getah Para Muara Kelingi* Total

9M10

9M11

9M12

31.7 56.2 87.9

58.4 3.3 61.7

42.1 12.8 54.9

Source: Company data, Credit Suisse. *Halcyon purchased raw materials for trading before the acquisition of HMK1&2

Given that Halcyon does not have long-term supply contracts with any of its suppliers, and transacts largely on a cash-on-delivery basis with all its suppliers in line with industry practices, it is dependent on the steady supply of raw materials at fair prices to fulfil its obligations to customers. Unfavourable weather conditions and other supply side constraints may thus affect the availability of raw materials from suppliers, and restrict Halcyon’s ability to grow its processing volumes. Through geographical expansion to Malaysia, we believe that Halcyon's dependence on its key suppliers will progressively come down over the coming periods.

Major customers account for significant revenues Sales to Halcyon’s major customers account for a substantial portion of total revenues: Figure 38: Customers accounting for more than 5% of total revenue (%) Cooper Tire Bridgestone Sri Trang International New Continent Enterprise Marubeni Continental Total

9M10

9M11

9M12

72.8 7.6 17.2 97.6

48.7 7.5 16 9.5 14.9 96.6

38.8 13.7 13.1 12.9 9.3 87.8

Source: Company data, Credit Suisse

Top five customers of Halcyon in 9M12 are the established international tyre manufacturers and trading houses, and they contributed 88% of total revenue for 9M12. Material cancellations or reduction in orders from these key customers would thus have a significant impact on Halcyon. We expect its customer base to be more diversified with the

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acquisition of Chip Lam Seng, which has approvals to sell processed rubber to new customers like Hankook and Nexen.

Significant exposure to tyre industry Given that the tyre industry represents the largest end market for natural rubber, and that virtually all of Halcyon’s products are sold directly or indirectly to the tyre manufacturers, Halcyon is substantially exposed to the end market demand in the tyre industry. A sizeable number of Halcyon’s direct customers include the leading tyre manufacturers, who require their suppliers to undertake a rigorous qualification programme to ensure that their output meets the standards required. These customers also enforce strict quality control standards on their natural rubber suppliers, and as a result any suspension of approval status and product claims may adversely affect the long term sales relationship of Halcyon and its key customers. However, despite the short operating history of Halcyon, the company is already an approved supplier to nine of the major tyre manufacturers, with steady progress being made on approvals with the other major manufacturers. As such, we believe that the right systems and processes are in place to ensure continued compliance with the rigorous qualification programmes of Halcyon's customers.

Availability of substitutes for natural rubber To a certain extent, synthetic rubber is a substitute for natural rubber. With synthetic rubber produced mainly from petroleum and petrochemical products, a sustained decline in world oil prices or the discovery of new production methods may result in the development of new substitutes for natural rubber. However, despite being in existence since the mid-20th century, synthetic rubber has not been able to replace natural rubber owing to the differentiated properties of natural rubber that are not easily replicated.

Funding risk Halcyon transacts on a cash-on-delivery basis with all its suppliers, while payment periods for its customers generally range from 2 to 15 days upon delivery. In addition, natural rubber yields are lowest during the wintering period, which typically spans from August to October. As a result, inventory holdings of raw materials typically increase during the wintering period to manage exposure to seasonality. Given the significant amount of cash involved in its operations, Halcyon relies on working capital facilities provided by the banks to fund its purchases, and in times of higher market prices for natural rubber, working capital requirements will increase. Halcyon will thus be affected should it be unable to continue to access sufficient working capital at reasonable rates. However, we understand that significant undrawn capacity exists for the working capital facilities provided by the banks. Further, such loans are collateralised by the inventories purchased, thus providing greater security to the lending banks and correspondingly, lower funding risks to Halcyon.

Foreign currency risk At present, all of Halcyon's purchases are denominated in IDR, given that raw materials are purchased from the local suppliers on a daily basis, while all of Halcyon's revenues are denominated in USD. In 9M12, approximately 47.7%, 31.8% and 20.5% of the group’s expenses were denominated in SGD, USD and IDR, respectively. Foreign currency exposure thus arises from timing differences between invoicing and collection and payment, and may affect the financial position of Halcyon as it does not currently have a formal foreign currency hedging policy in place. On an operational basis, foreign currency risk for Halcyon is mitigated through the daily purchasing of raw materials, with the exchange rate fixed on a daily basis. Halcyon thus does not seek to take a position on foreign currencies, and is thus less susceptible to the volatilities in the foreign exchange market.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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Company profile Group structure Halcyon Agri largely operates through its two key subsidiary companies, Hevea Global and Hevea Processing. Hevea Processing, through PT Hevea provides procurement, processing and export services in Palembang, Indonesia. PT Hevea is a significant processor of natural rubber, and one of the largest producers in Palembang, Indonesia. The natural rubber produced is acquired by Hevea Global, sold and marketed to Halcyon Agri's customers globally. Hevea Global is also engaged in risk management and manages the customer contracts of the group. Figure 39: Halcyon Agri group structure Halcyon Agri

100%

100%

100%

Hevea Global

Halcyon Plantations (dormant)

Hevea Processing

Alex Kurniawan, Exec. Officer

95% 5%

PT Hevea

Source: Company data, Credit Suisse

Following the completion of the JFL, CLS, and PT Golden Energi acquisitions, Halcyon Agri will be organised into the following structure, with all rubber processing factories leveraging on Hevea Global's marketing operations. Figure 40: Halcyon Agri Group Structure after acquisitions Halcyon Agri

Hevea Global

Halcyon Agri Indonesia

PT Hevea MK

PT Golden Energi

Halcyon Agri Malaysia

Halcyon Agri (Malaysia)

Halcyon Rubber Company

JFL Agro

Halcyon Rubber Estates

Chip LamSeng

Source: Company data, Credit Suisse

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

■

Hevea Global: Continues to assume all market risk, fulfil fiduciary functions and management oversight by acting as a sole customer to each factory

■

Halcyon Agri Indonesia: Consists of HMK1&2 and Golden Energi factories. Aims to consolidate a highly fragmented crumb rubber processing sector

■

Halcyon Agri Malaysia: Consists of CLS factories, JFL Agro plantations and Halcyon Rubber Estates, the estate manager of JFL Agro and tapping school for Halcyon. Aims to become the largest natural rubber business in Malaysia over five years

Business model Being a midstream player in the natural rubber industry, Halcyon Agri basically acquires raw materials in the form of rubber slabs made from coagulated cup lumps, and processes them into rubber products usable by the tyre manufacturing industry. Figure 41: Technically Specified Rubber (TSR) production—A two-week production process cycle

Rubber pieces are moved through 3 blending tanks and cleaned with water

Rubber pieces shredded in the hammermill machine into 5cm cubes

Shredded rubber passed into blending tanks for further cleaning

Cleaned rubber processed into “wet blankets” through creeper machines

Wet blankets folded, weighed and tested for dirt, ash and initial plasticity

Visual quality check and weight check performed

Crumb rubber passed through palletiser/dry prebreaker and cooled

Crumb rubber passed through a series of dryers

Crumb rubber passed through a vacuum pump to remove excess water

Dry shredded rubber passed into blending tanks for cleaning

Dried blankets are shredded in the hammermill machine (making “crumb rubber”)

Wet blankets hung to dry in a drying room for 10-14 days

Sample taken and a range of tests performed to verify quality

Metal detector test of each rubber bale

Final weigh test to confirm the weight per rubber bale is 35kg

Each pallet of rubber individually sealed

Sealed packets are packed according to customer specifications for export

Dry process

Rubber slabs are broken into smaller pieces using a rubber breaker

Wet process

Raw materials in form of rubber slabs (made from cup lumps)

Source: Company data, Credit Suisse

Seasonality There exists seasonality in the production of natural rubber, which in turn affects the natural rubber industry. Tree yields for the South Sumatra province are lowest during the wintering period, which typically spans from August to October. Halcyon Agri manages its exposures to seasonality by increasing its stock of raw materials during the wintering period, through increased purchases in the lead up to the wintering period. Product types Halcyon Agri is solely involved in the production of Technically Specified Rubber (TSR), and is not involved in the production of Ribbed Smoked Sheets (RSS) and Concentrated Latex. The International Standards Organisation (ISO) first published the draft Technical Specifications for natural rubber during 1964. Each natural rubber producing country has since introduced their own national specifications, detailing the maximum permissible content of ash, dirt, nitrogen and volatile substances: ■

Standard Indonesian Rubber (SIR)

■

Standard Malaysian Rubber (SMR)

■

Standard Sri Lanka Rubber (SSR)

■

Standard Vietnam Rubber (SVR)

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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06 January 2014

■

Indian Standard Natural Rubber (ISNR)

■

Standard Thai Rubber (STR).

Figure 42: Standard Indonesian Rubber (SIR) TSR CV

TSR L

Parameter

Unit SIR 3CV50 SIR 3CV60

Dirt (max) Ash (max) Nitrogen (max) Volatile Matter (max) Initial Plasticity (min) PRI index (min) Colour Lovibond Scale (individual value, max) Mooney Viscosity (ML, 1+4, 100°C)

% wt % wt % wt % wt

TSR 5

TSR 10

TSR 20

SIR 3L

SIR 3WF

SIR 5

SIR 10

SIR 10VK

SIR 20

SIR 20VK

0.03 0.5 0.6 0.6 30 60 NA

0.03 0.5 0.6 0.6 30 60 NA

0.03 0.5 0.6 0.8 30 75 6

0.03 0.5 0.6 0.8 30 75 NA

0.05 0.5 0.6 0.8 30 70 NA

0.1 0.75 0.6 0.8 30 60 NA

0.1 0.75 0.6 0.8 30 60 NA

0.2 1 0.6 0.8 30 50 NA

0.2 1 0.6 0.8 30 50 NA

50 +/- 5

60 +/- 5

NA

NA

NA

NA

60 +/- 5*

NA

60 +/- 5*

Source: Inpol, Credit Suisse. *Not specification status, but are controlled at the producer end.

Being of Indonesian origin, Halcyon Agri produces TSR of varying specifications, all of which are mainly used as key inputs in the manufacture of vehicle tyres: ■

SIR20: Standard medium grade rubber

■

SIR20-VK: Highly sought by customers due to technical properties, allowing tyre manufacturers to lower their energy costs and increase manufacturing throughput. Priced at a premium over SIR20.

■

SIR20-Compound: Suited in particular to the China market

■

Other products: SIR10, SIR10-VK

Revenues Revenues are derived through the sale of natural rubber products, with minimal revenue recognition due to the associated physical rubber hedging revenues and revenues from the unrealised fair value gain/(loss) in open forward commodity contracts. Revenues are thus largely driven by sales volume of rubber products sold. Figure 43: Quarterly revenues and sales volume 80,000 69,496

70,000 60,000

55,962

52,124

50,111

50,000

53,976 47,358

44,426

40,000 30,000 20,000

19,122

18,672

13,897

15,355

16,534

19,926

19,362

10,000 0 1Q12

2Q12

3Q12 Revenue (US$ '000)

4Q12

1Q13

2Q13

3Q13

Sales volume (tonnes)

Source: Company data, Credit Suisse

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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Sales are conducted on a spot basis for delivery within three months, or conducted based on long-term contracts. A majority of Halcyon Agri's volumes are sold through long-term sales contracts ranging from 3 to 12 months, with a specified volume, delivery schedule and pricing basis. Given the better visibility on demand and its corresponding effect on procurement and production planning, Halcyon Agri seeks to have the majority of sales on the basis of long-term contracts, with 74% of sales volume and 77% of revenue derived from long term contracts in 9M12. Given the pricing premium of SIR20-VK and the strong demand-supply fundamentals, Halycon Agri also seeks to maximise the production of SIR20-VK given its attractiveness to tyre manufacturers. Revenue breakdown by geography The breakdown of revenue /sale and trading of processed rubber is based on the origin of its customers’ ultimate parent company. Given that Cooper Tire accounts for a majority of Halcyon Agri's revenues, sales to the US similarly accounts for a majority of its revenues. Figure 44: Halcyon Agri revenue breakdown by geography 9M10

2011

2012

US$ mn

% share

US$ mn

% share

US$ mn

% share

7.2 0.8 0.2 1.7 9.9

72.7 8.1 2.0 17.2 100.0

110.7 87.3 28.5 0.8 227.2

48.7 38.4 12.5 0.3 100.0

89.2 80.1 41.8 8.4 1.1 220.6

40.4 36.3 19.0 3.8 0.5 100.0

USA Asia (ex SG & China) Singapore Europe China Total

Source: Company data, Credit Suisse

Cost of sales breakdown Raw materials cost represents a significant majority of Halcyon Agri's cost of sales, between 95% and 100% of total costs. Raw material costs are directly related to the market price for natural rubber as gauged by the SICOM TSR20 prices, procurement effectiveness and the availability of raw materials supply. Figure 45: Halcyon Agri cost of sales breakdown 9M10 Raw materials Employee benefit expense Service fee Depreciation Other processing costs Total cost of sales

9M11

9M12

US$ mn

% share

US$ mn

% share

US$ mn

% share

9.7 —

100 —

156.8 1.2

95 0.7

155.7 2.2

96.1 1.4

— — — 9.7

— — — 100

4.4 0.5 2.2 165.1

2.7 0.3 1.3 100

— 0.5 3.5 161.9

— 0.3 2.2 100

Source: Company data, Credit Suisse

Brief history Halcyon Agri was incorporated in Singapore in 2005, but remained a dormant company up until 2010, when the company started its natural rubber trading business through investing in Hevea Global in May 2010. Thereafter, Halcyon Agri acquired all outstanding shares of Hevea Global in July 2010. In September 2010, Halcyon Agri exercised in September 2010 an option (acquired in August 2010) to acquire the HMK1 and HMK2 rubber processing facilities and the related operating assets, as well as the know-how of the technology and processes relating to SIR20-VK rubber, for a total consideration of US$20 mn from PT Perusahaan Getah Para Muara Kelingi. The acquisition was completed in February 2011.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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Although the company only began operations in recent years, the HMK1 and HMK2 processing facilities have been in operation since the 1960s and 1980s, respectively, and enjoy a well-established reputation for high quality production in the natural rubber industry. TSR produced by HMK1 and HMK2 have regularly outperformed the minimum technical specifications required. Halcyon Agri has since put in place its own risk management and merchandising operations and professional systems, secured new funding and built up its own customer base and customer contracts to be aligned to its business model. In a bid to grow inorganically, Halcyon Agri has also proposed the acquisitions of Chip Lam Seng, JFL Agro and PT. Golden Energi in 2H13 to expand the number of processing facilities in Indonesia and Malaysia, and to move into the upstream business in Malaysia through cultivating rubber plantations. Figure 46: Timeline of key events Apr 2005: Halcyon Agri incorporated

Jul 2010: Acquired 100% of Hevea Global

Feb 2011: Acquisition of HMK1 1Q13: Additional wet-line & HMK2 complete fully operational

Jun 2013: Proposed acquisition of Chip Lam Seng

Sep 2013: Proposed acquisition of Golden Energi

1960s: HMK1 in operation May 2010: Invested in Sep 2010: Exercised option to acquire Sep 2012: S$8.5 mn construction of Feb 2013: Halcyon Agri Sep 2013: Proposed 1980s: HMK2 in operation Hevea Global HMK1 & HMK2 for US$20 mn additional wet-line at HMK2 complete listed on Catalist acquisition of JFL Agro Source: Company data, Credit Suisse

Management team Executive chairman and CEO – Robert Meyer Mr Robert Meyer is the Executive Chairman and CEO of Halcyon Agri and is in charge of formulating and executing the strategic business development of the Group. Between 1999 and 2004, Mr Robert Meyer was a director in Kingfisher Automotive Pte. Ltd. and its affiliated companies and was in charge of business development. His responsibilities centred on finding new agencies for the company, as well as expanding its distribution network in Asia. During that period, he travelled extensively throughout Asia and negotiated sales and distribution contracts with automotive and industrial stockists in the region. Mr Robert Meyer left Kingfisher Automotive Pte. Ltd. in December 2004 and founded the Halcyon Group. He has contributed significantly to the Halcyon Group’s development and charted its corporate direction together with his co-founders and management team. He is in charge of formulating and executing the strategic business development of the Group, and his responsibilities include overseeing the core aspects of the business such as Halcyon Agri's rubber processing operations and sales and marketing operations. Chief Commercial Officer – Andrew Trevatt Mr Andrew Trevatt is responsible for merchandising, risk management and business development. Mr Andrew Trevatt started work in 1982 as a junior auditor/assistant to the senior accountant at Aarons Grew & Woodcroft, Certified Accountants, London. In 1986, he commenced working as a trader for Lewis & Peat (Rubber) Ltd, London, and stayed with the company for 14 years till 2000. His last position held at Lewis & Peat (Rubber) Ltd, London, was trading director. In 2002, he went on to work in Sri Trang International Pte. Ltd. as its chief executive officer. In 2007, he joined Louis Dreyfus Commodities Asian Pte. Ltd. as a trading manager.

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Mr Andrew Trevatt joined Halcyon Agri in 2010. After 26 years of experience in the natural rubber industry, he has a thorough understanding of its operations, including customer and supplier relationships, natural rubber processing knowledge and customer requirement knowledge. He is also responsible for growing the client and supplier base of the business. Technical Director – James Ronald Bugansky Mr James Ronald Bugansky is responsible for analysing, maintaining and ultimately improving the company's technical resources in both existing factories, as well as in potential mid and upstream acquisitions. Prior to his appointment, he had worked as an exclusive consultant for Halcyon Agri since May 2013. Mr James Bugansky has more than 34 years of experience in natural rubber processing and plantations. Following his graduation from the Ohio State University in 1976, he started work in the rubber industry as the Plantation Management Trainee of PT Goodyear Sumatra Plantation before moving up to be the Assistant Managing Director of Goodyear Guatemala Plantation, and subsequently Goodyear Brazil Plantation. From 1984 to 2001, he held a senior management position at The Goodyear Tire & Rubber company's headquarters covering different areas from Research and Development (Senior Research Fellow - Research / Corporate), Administrative Management (Manager Plantation Operations), Purchasing to Inventory and Material Management (Global Materials Manager). In 2001, he returned to plantation work at PT Goodyear Sumatra Plantation Company in Indonesia as General Manager and Director. Thereafter he worked as the Factories Operations Manager at Firestone Liberia from 2007 to 2009 taking responsibility for three natural rubber processing factories and one rubber wood factory. Following this, and prior to his service with the Group, he was an independent consultant and worked for GMG Global as the General Manager Industrial Performance/EHS. Chief Financial Officer – Ng Eng Kiat Mr Ng Eng Kiat, was appointed as Halcyon Agri's CFO on 1 January 2013. He joined the Halcyon Group as its Financial Controller in December 2011 and has been responsible for overseeing the accounting and financial matters of the Group since he joined the Halcyon Group. Prior to joining Halcyon, he worked as an Assurance Supervisor in KPMG LLP in Kuala Lumpur, Malaysia from 2002 to 2005. In 2005, he went on to join Ernst & Young LLP in Leeds, England as an Assurance Manager, and thereafter worked at the same firm in Singapore as an Assurance Senior Manager from 2010 to 2011. He has been a fellow member of the Association of Chartered Certified Accountants since 2005 and is also a member of the Institute of Certified Public Accountants of Singapore. Director of Operations, Palembang – Leonard Beschizza Mr Leonard Beschizza is responsible for industrial and human resource matters in Palembang, including the daily procurement and monitoring of raw materials. Mr Leonard Beschizza started working as a trader with Pacol Ltd, London, a member of the Gill & Duffus Group in 1971. He went on to become a director of Pacol Sdn Bhd and Pacol Singapore in 1976, and his duties included the procurement of natural rubber and cocoa on behalf of Pacol’s UK and North American trading offices. In 1978, he returned to Pacol Ltd, London, to head the natural rubber trading desk and was appointed as a main board director in 1985. In 1987, he went on to become the director of Centrotrade Singapore and headed the natural rubber trading team at Centrotrade Singapore. In 1995, he headed the sales and marketing department in PT PP London Sumatra Indonesia and dealt with the price risk management of agricultural products. In addition, he was a moderator at the Indonesian Palm Oil Association or GAPKI (Gabungan Pengusaha Kelapa Sawit Indonesia) conferences in 2008, 2009 and 2010.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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Mr Leonard Beschizza joined Halcyon Agri in 2010. After working for about 40 years in the natural rubber and agricultural industry, he is experienced in most aspects of the natural rubber business, including the processing and trading of physical rubber and futures. He also has an in-depth knowledge of the palm oil and cocoa industry. Head of Production, Palembang – Alex Kurniawan Edy Mr Alex Kurniawan Edy, Halcyon Agri's Head of Production, joined the Group in 2011 as part of the acquisition of the HMK1 and HMK2 facilities. Since he joined the Group, he has been responsible for overseeing the rubber processing operations, administrative and human resource matters of PT Hevea. He has been involved in the natural rubber industry for 20 years and, during this period, has been exclusively employed in relation to HMK1 and HMK2. Mr Alex Kurniawan Edy started work at PT Perusahaan Getah Para Muara Kelingi in 1992 as its factory manager and remained with PT Perusahaan Getah Para Muara Kelingi until Halcyon Agri's acquisition of HMK1 and HMK2 in 2011. Mr Alex Kurniawan Edy has been the Chairman of the South Sumatra office of GAPKINDO since 1996 and is also the Vice Chairman of GAPKINDO’s central office in Jakarta. Head of Procurement, Palembang – Rachman Rachmadi Mr Rachman Rachmadi, Halcyon Agri's Head of Procurement, joined the Group in 2011 as part of the acquisition of the HMK1 and HMK2 facilities. Since he joined the Group, he has been responsible for overseeing the financial matters of PT Hevea and manages PT Hevea’s raw material procurement and payment process. He has been involved in the natural rubber industry for over 40 years and, in particular, has been closely involved with the operations of HMK1 and HMK2 for 25 years. Mr Rachman Rachmadi started work in 1968 as a director of PT Garuntang, a company engaged in the rubber business in the Lampung Province in Indonesia. In 1987, he joined PT Perusahaan Getah Para Muara Kelingi, from whom the HMK1 and HMK2 facilities were acquired, as its finance manager. In 1990, he was made a director of PT Perusahaan Getah Para Muara Kelingi and he remained with it until Halcyon Agri's acquisition of HMK1 and HMK2 in 2011.

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Industry background According to the Food and Agriculture Organisation of the United Nations (FAO), the global natural rubber industry is a US$33 bn p.a. business, thus making it second only to palm oil as the largest tropical agriculture crop. Natural rubber is used in various industrial and consumer applications such as examination gloves, hydraulic hoses, conveyor belts, but the most significant source of end demand arises from the tyre industry. The tyre industry is the largest consumer of natural rubber, accounting for approximately 70% of natural rubber demand. Natural rubber is a critical ingredient in tyre manufacturing due to its superior properties such as elasticity, anti-tearing and low heat generation among others. Rubber trees, Hevea Brasiliensis, from which natural rubber is sourced, grows well only within 10 to 15 degrees of the equator. No synthetic substitute has been found which fully mimics the properties of natural rubber, with natural rubber and synthetic rubber being both substitutes and complimentary products. (limited substitution effect). Thailand, Indonesia and Malaysia are the largest rubber-producing countries in the world, together accounting for about 68% of global production. Palembang is the largest natural rubber exporting port in Indonesia, accounting for approximately a third of total exports.

Rubber demand The demand for tyres arises from both the sale of new vehicles (Original Equipment Market sales) and the replacement of tyres on existing motor vehicles due to wear and tear. The replacement market dominates the tyre market at 70% of total tyre demand, and relates to the existing world population of motor vehicles at more than one billion units. Demand for tyres and thus the demand for natural rubber is commonly linked to global growth. Accordingly, emerging markets are amongst the largest contributors to the growth in demand for natural rubber, having grown from c. 40% of global consumption in 2000 to 60% of the global consumption in 2011. Nearly 90% of the growth in global consumption through to 2021 is expected to come from emerging markets. Figure 47: Leading natural rubber consuming countries 1997 China Other Asia EU North America India Japan Latin America Other Europe and CIS Africa Total

2011

'000 tonnes

% of total

'000 tonnes

% of total

713 1,326 915 1,175 572 910 385 163 110 6,269

11.4 21.2 14.6 18.7 9.1 14.5 6.1 2.6 1.8

3,603 2,310 1,206 1,165 957 753 582 250 89 10,915

33.0 21.2 11.0 10.7 8.8 6.9 5.3 2.3 0.8

Source: IRSG, Credit Suisse

Of particular interest is China, where consumption of natural rubber has grown five times from 713,000 tonnes in 1997 to 3.6 mn tonnes in 2011, thus making it an important market for natural rubber. The IRSG expects a further 96% increase through to 2021, from 2011 levels.

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Rubber supply Key factors driving the production of natural rubber are the total planted area, planting density, yields, seasonality and weather. The IRSG expects global production of natural rubber to grow from 11 mn tonnes in 2011 to 16.8 mn tonnes by 2021. Figure 48: Forecast production of natural rubber (mn tonnes) 18 16 14 12

11

11.3

2011

2012

12.5

11.8

13.2

13.8

14.5

15

15.4

2018

2019

16.2

16.8

10 8 6 4 2 0 2013

2014

2015

2016

2017

2020

2021

Production (mn tonnes)

Source: IRSG, Credit Suisse

Rubber trees, Hevea Brasiliensis, from which natural rubber is sourced, grow well only within 10 to 15 degrees of the equator where consistent high temperatures and high rainfall can be found. Asia Pacific accounts for more than 90% of global production, with Thailand, Indonesia and Malaysia alone accounting for about 68% of global production. Figure 49: 2011 world natural rubber production by country/region

Other Asia Africa LatAM 3% 4% 4% China 6%

Thailand 32%

Vietnam 7% India 8%

Malaysia 9%

Indonesia 27%

Source: IRSG, Credit Suisse

The leading exporters and importers closely mirror that of the leading producers and consumers, respectively, with Thailand being the largest producer and exporter of natural rubber and China being both the largest importer and consumer.

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Figure 50: Leading exporters and importers of natural rubber, 2011 Gross exports

Gross imports

'000 tonnes

% share

2,929.8 2,565.8 1,239.5 816.6 226.3

35.1 30.7 14.8 9.8 2.7

Thailand Indonesia Malaysia Vietnam Côte d'Ivoire

'000 tonnes

% share

2,665.4 1,663.7 1,048.6 785.3 667.4

30.7 19.1 12.1 9.0 7.7

China EU US Japan Malaysia

Source: IRSG, Credit Suisse

Rubber prices As a commodity product, prices of natural rubber are subjected to a variety of factors, including the interaction of demand and supply of natural rubber, currency movements particularly between USD and natural rubber exporting countries' currencies, speculation and crude oil prices (impact on prices of synthetic rubber) amongst others. Figure 51: Historical natural rubber prices (US$/tonne) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

SICOM - TSR20 price ($/tonne)

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Indonesian natural rubber industry According to the Rubber Association of Indonesia, Gabungan Perusahaan Karet Indonesia (Gapkindo), preliminary estimates for total Natural Rubber production in Indonesia for 2012 is at 3 mn tonnes while according to GAPKINDO, based on approximately 3.5 million planted hectares. About 78% of the rubber produced in Indonesia is sourced from smallholders as opposed to being sourced from commercial estates. Figure 52: Indonesian Natural rubber production by producer ('000 tonnes)

2008

2009

2010

2011

2012*

2013**

Smallholder Govt. estate Private estate Total production

2,174 277 301 2,751

1,942 239 259 2,440

2,179 266 289 2,735

2,360 302 328 3,990

2,361 326 354 3,040

2,471 340 370 3,180

Source: GAPKINDO, Credit Suisse. * Preliminary, **Estimation

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Figure 53: Indonesian Natural rubber plantation area by producer (‘000 hectares)

2008

2009

2010

2011

2012*

2013**

Smallholder Govt. estate Private estate Total area

2,910 238 276 3,424

2,912 239 284 3,435

2,922 239 284 3,445

2,932 257 267 3,456

2,959 258 267 3,462

2,963 259 269 3,492

Source: GAPKINDO, Credit Suisse. * Preliminary, **Estimation

Reflecting this and the age profile of some areas, average yields on smallholder plantations are estimated to be c. 800kg per hectare per year as opposed to c. 1,300kg per hectare per year for managed estates and between 1,500kg and 2,000kg per hectare per year as seen in other geographies such as Thailand and Malaysia. The Indonesian Ministry of Agriculture has pursued a number of programmes over many years with the objective of improving the productivity of Indonesia’s Natural rubber land, in particular, the land cultivated by smallholders. Such programmes commonly involve replanting older rubber trees with newer, higher yielding varieties. Replanting and new planting in Indonesia tends to be seen in periods of relatively higher rubber prices. The recent history of replanting and new planting in Indonesia is shown in Figure 54: Figure 54: Replanting and new planting in Indonesia ('000 hectares) 140 120 100 80 60 40 20 0 2001

2002

2003

2004

2005

2006

Replanting

2007

2008

2009

2010

2011

2012

New planting

Source: IRSG, Credit Suisse

Natural rubber processing in Indonesia Natural rubber processors play a key role in the industry, aggregating natural rubber supply from a large number of smallholders and commercial plantations, processing them to global standards and then selling them to end customers. As a regulated industry, processors are required to hold various licences, including an export licence which specifies the maximum amount of processed rubber that can be exported per year. About 97% of the natural rubber exported by Indonesia is in the form of Standard Indonesian Rubber (SIR), in particular SIR-20:

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Figure 55: Indonesia rubber exports by type and grade (tonnes)

2007

2008

2009

2010

2011

2012

Latex concentrate

7,610

8,547

9,147

12,929

9,502

7,620

RSS

275,497

137,756

77,040

60,166

67,333

66,682

RSS 1

-

-

-

57,888

59,997

54,915

RSS 2

-

-

-

564

766

1,124

RSS 3

-

-

-

151

191

256

RSS 4

-

-

-

128

378

440

RSS 5

-

-

-

630

430

19

Other nat. rubber

-

-

-

804

5,571

9,928 2,370,136

SIR

2,121,863

2,148,447

1,905,016

2,278,820

2,478,904

3L

8,352

40,921

59,868

11,296

7,516

5,806

3CV

4,287

2,077,274

1,812,929

34,465

34,423

24,583

10

33,792

9,722

11,702

63,733

65,322

60,573

20

2,063,306

9,894

14,828

2,165,418

2,370,274

2,279,134 40

Other SIR

12,126

10,636

5,689

3,907

1,369

Other types

1,786

706

60

-

-

-

Grand total

2,406,756

2,295,456

1,991,263

2,351,915

2,555,739

2,444,438

Value (USD)

4,868,746,275 6,056,572,688 3,241,363,935 7,326,605,391 11,762,317,277 7,861,377,575

Source: GAPKINDO, Credit Suisse

The US remains the top export destination of Indonesian rubber in 2012 at 572,278 tonnes, with China gaining an increasing share of Indonesia’s export from 318,841 tonnes in 2008 to 437,750 tonnes in 2012. Figure 56: Top ten export destinations of Indonesian rubber (tonnes) US China Japan Rep. of Korea India Canada Brazil Germany France Belgium & Luxemburg

2008

2009

2010

2011

2012

622,167 318,841 400,693 106,460 26,559 59,163 77,066 57,705 46,380 31,573

394,307 457,118 272,878 99,548 83,562 51,21 58,507 36,639 30,083 17,01

546,548 418,098 313,242 91,81 99,323 69,546 110,079 57,492 47,779 14,634

607,87 409,377 387,655 120,059 68,769 77,262 94,426 60,757 65,642 32,593

572,278 437,750 389,234 142,691 107,848 76,701 71,086 59,764 49,062 44,668

Source: GAPKINDO, Credit Suisse

In Indonesia, the Natural Rubber processing industry is well-established, with a large number of facilities operating across the archipelago and supplying into a range of ports for export. The Musi River/Boom Baru port in Palembang, the capital of South Sumatra, is the largest export port for processed natural rubber in Indonesia, accounting for approximately a third of the total exports.

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Figure 57: Top ten Indonesian natural rubber exporting ports Exporting port

Region

Musi River/Boom Baru Belawan Padang/Tl. Bayur Pontianak Jambi Surabaya/Tg. Perak Panjang Kijang (U) Pangkalan Balam Tg. Priok

South Sumatra North Sumatra West Sumatra West Kalimantan Jambi East jawa Lampung Riau South Sumatera Jakarta / west Jawa

2012 880,877 625,998 230,428 198,124 190,976 158,693 37,820 34,357 20,622 14,020

Source: GAPKINDO, Credit Suisse

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Companies Mentioned (Price as of 02-Jan-2014) Apollo Tyres (APLO.NS, Rs102.75) Archer Daniels Midland Inc. (ADM.N, $42.99) Bridgestone (5108.T, ¥3,980) Bumitama Agri Limited (BUMI.SI, S$0.96) Bunge Limited (BG.N, $81.92) Cheng Shin Rubber (2105.TW, NT$78.0) Continental (CONG.DE, €157.5) Cooper Tire Rubr (CTB.N, $23.93) Felda Global Ventures (FGVH.KL, RM4.55) First Resources Ltd (FRLD.SI, S$2.19) GMG (GMGG.SI, S$0.103) Genting Plantations Bhd (GENP.KL, RM10.78) Glencore Xstrata PLC (GLEN.L, 310.5p) Golden Agri-Resources (GAGR.SI, S$0.55) Goodyear Tire (GT.OQ, $23.53) Halcyon Agri Corporation Ltd (HALC.SI, S$0.8, OUTPERFORM[V], TP S$1.1) Hankook Tire (161390.KS, W59,900) IOI Corporation (IOIB.KL, RM4.6) Indofood Agri Resources Ltd (IFAR.SI, S$0.89) Kuala Lumpur Kepong (KLKK.KL, RM24.32) Kumho Tire (073240.KS, W11,050) Marubeni Corp (8002.T, ¥756) Michelin (MICP.PA, €76.08) Nexen Tire (002350.KS, W14,400) Noble Group Ltd (NOBG.SI, S$1.06) Olam (OLAM.SI, S$1.52) PT Astra Agro Lestari Tbk (AALI.JK, Rp24,650) PT BW Plantation Tbk (BWPT.JK, Rp1,320) PT London Sumatra Indonesia (LSIP.JK, Rp1,900) Pirelli and C (PECI.MI, €12.47) S Giti Tire (600182.SS, Rmb13.39) Salim Ivomas Pratama (SIMP.JK, Rp790) Sampoerna Agro Tbk (SGRO.JK, Rp2,050) Sime Darby (SIME.KL, RM9.49) Sri Trang Agro (STA.BK, Bt12.4) Sumitomo Rubber Industries (5110.T, ¥1,494) Toyo Tire & Rub (5105.T, ¥599) Wilmar International Ltd (WLIL.SI, S$3.39) Yokohama Rubber (5101.T, ¥1,033)

Disclosure Appendix Important Global Disclosures I, Louis Chua, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neut rals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadia n as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the releva nt sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 40% (49% banking clients) Underperform/Sell* 15% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for Halcyon Agri Corporation Ltd (HALC.SI) Method: Our target price of S$1.10 for Halcyon Agri Corporation Ltd is based on 9.0x 2015E EPS (earnings per share), in line with peer industries. Risk:

Risks that could impede achievement of our S$1.10 target price for Halcyon Agri Corporation Ltd include:( i) inability to secure raw material supplies at fair prices; (ii) material cancellation or reduction in orders; (iii) a sustained slump in end market demand in the tyre industry; (iv) funding risks; and (v) forex risks.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

The subject company (HALC.SI, 8002.T, ADM.N, BG.N, OLAM.SI, NOBG.SI, WLIL.SI, GLEN.L, GAGR.SI, LSIP.JK, GENP.KL, SIMP.JK, IFAR.SI, BWPT.JK, KLKK.KL, IOIB.KL, SGRO.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (BG.N, OLAM.SI, WLIL.SI, GLEN.L, GAGR.SI, LSIP.JK, SIMP.JK, IFAR.SI, SGRO.JK) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (8002.T, ADM.N, BG.N, NOBG.SI, WLIL.SI, GLEN.L) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (OLAM.SI, GLEN.L) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (BG.N, OLAM.SI, WLIL.SI, GLEN.L, GAGR.SI, LSIP.JK, SIMP.JK, IFAR.SI, SGRO.JK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (HALC.SI, 8002.T, 5110.T, 5108.T, ADM.N, BG.N, OLAM.SI, WLIL.SI, GLEN.L, FGVH.KL, GAGR.SI, LSIP.JK, GENP.KL, FRLD.SI, SIMP.JK, IFAR.SI, BWPT.JK, AALI.JK, KLKK.KL, IOIB.KL, BUMI.SI, SGRO.JK) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (8002.T, ADM.N, BG.N, NOBG.SI, WLIL.SI, GLEN.L) within the past 12 months

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As of the date of this report, Credit Suisse makes a market in the following subject companies (ADM.N, BG.N). Credit Suisse may have interest in (SIME.KL, FGVH.KL, GENP.KL, KLKK.KL, IOIB.KL) Credit Suisse has a material conflict of interest with the subject company (ADM.N) . Credit Suisse is the financial advisor to GrainCorp Limited in relation to the proposed acquisition offer by Archer Daniels Midland Inc. Credit Suisse has a material conflict of interest with the subject company (OLAM.SI) . Credit Suisse (Singapore) Limited is acting as a joint bookrunner and underwriter in the renounceable underwritten rights issue of US$750 million in principal amount of 6.75 per cent. bonds due 2018 with 387,365,079 free detachable warrants of Olam International Limited announced on 3 December 2012. In addition, Credit Suisse and certain of its affiliates may from time to time perform commercial banking, investment banking and other advisory services for Olam International Limited and its affiliates for customary fees and expenses. Save for the foregoing, the issuer of this report does not have any material interest in the issue or sale of the securities concerned nor has any material relationship with Olam International Limited. Credit Suisse has a material conflict of interest with the subject company (GLEN.L) . Credit Suisse Securities (Europe) Limited is acting as financial advisor in connection with the GlencoreXstrata sale of its interest in the Las Bambas copper mine project in Peru.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (HALC.SI, 8002.T, 161390.KS, 2105.TW, ADM.N, BG.N, OLAM.SI, NOBG.SI, WLIL.SI, GLEN.L, SIME.KL, FGVH.KL, GAGR.SI, LSIP.JK, GENP.KL, FRLD.SI, SIMP.JK, IFAR.SI, BWPT.JK, AALI.JK, KLKK.KL, IOIB.KL, BUMI.SI, SGRO.JK) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (8002.T, OLAM.SI, GLEN.L, GAGR.SI) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch .................................................................................................................... Louis Chua ; Gerald Wong, CFA

Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

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For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

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06 January 2014

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Halcyon Agri Corporation Ltd (HALC.SI / HACL SP)

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