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From Seeds to Feeds

In the ever-evolving landscape of agricultural technology, stories of companies that nurture innovation and transform food production become the essence of progress.

One story that captured global interest is Syngenta Group, the world's leading agricultural technology company, with a history dating back 250 years.

Operating in over 100 countries and employing more than 57,000 individuals, Syngenta has left an indelible mark on the industry, leading the company to aim for new heights - including an IPO in its home country, China, which remarkably stands as the fourth largest IPO in China's history.

Imagine a scenario where geopolitical conflicts disrupt global supply chains, triggering a wave of deglobalization. Suddenly, the once-dependable sources of agricultural commodities face disruptions, leading to concerns over food security and stability.

Further illustrating this point is a real-life example from India. The country, a major exporter of rice, decided to curtail its rice exports due to concerns about domestic supply. This policy shift, coupled with the global tensions, sent ripples through international markets. Suddenly, nations that relied on these exports found themselves in a precarious position.

In such a world, companies like Syngenta shine as providers of solutions that address both food security and sustainability. They hold the key to ensuring that local agricultural systems can adapt, thrive, and meet the demand for sustenance despite the challenges.

With a mission to revolutionize food production, Syngenta embraces Regenerative Agriculture—a fusion of science and technology that bolsters soil health, elevates productivity, mitigates climate change, and rejuvenates biodiversity.

Drawing inspiration from Syngenta's journey, we find a similar spirit in our very own home country, Indonesia.

Enter PT BISI International Tbk (BISI), a beacon of innovation within the agricultural sector. Bolstered by the increasing awareness of the benefits of hybrid seeds and the expanding corn harvest areas, especially in regions like Sulawesi, BISI is at the forefront of the growing hybrid corn seed market.

BISI's strategic course has been one of remarkable growth. Our analysts predict a 10% yoy surge in corn seed sales volumes for the years 2023-24, reaching an impressive 17,400 and 19,200 tons, respectively.

With a strong earnings CAGR of 15% over the last decade, BISI's proficiency in the corn seeds segment has played a pivotal role. Additionally, the agrochemical segment, another key contributor to earnings, has shown a steady rise in volume alongside stable margins.

This surge is poised to drive enhanced profit margins, with projected EBITDA and net margins of 28.5% and 22.3% in 2023, along with anticipated net profits of Rp582bn and Rp670bn in 2023-24.

BISI's financial landscape paints a picture of stability and strategic acumen. With substantial net cash holdings reaching Rp1.3tn by mid-2023 and expected to grow further to Rp1.7tn by year-end, the net cash-to-equity ratio stands at 0.5x, significantly surpassing the historical average of 0.2x.

This robust trend is driven by BISI's potent free cash flow generation, enabling increased dividends. Notably, while the pre-Covid DPR was 55%, a projected dividend yields of 7% beckon, while a more aggressive 75% payout could extend yields to an impressive 10%.

With an eye on the future, BISI is poised to launch new hybrid paddy seed varieties, tapping into Indonesia's vast untapped potential in rice production. The hybrid rice seed market holds immense promise, with potential revenues of up to Rp9tn annually, driven by its adoption in 50% of Indonesia's rice cultivated area.

Our HoR, Edward reiterate his BUY recommendation and increased his DCF-based TP to Rp2,140 (previously Rp2,000), which implies a 9.6x 2024F PE ratio (current forward PE stands at a modest 7.0x).

While comparing the valuations of BISI and Syngenta might not directly align due to their differing sizes, drawing this comparison does offer a valuable context.

Despite the inherent dissimilarity, this parallel sheds light on their shared industry. They both emerge from the same agricultural technology sector, signifying the broader significance of their roles within this field.

BISI and Syngenta Value Comparison

Source : Sucor Sekuritas

As the company gears up to capture the potential of Indonesia's agricultural landscape, its trajectory seems poised for success. With a clear focus on innovation, sustainability, and growth, BISI stands as a beacon of hope for a brighter and more productive future in Indonesian agriculture.

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