Behshahr Industrial Development Corp. (BIDCO) Pasargad Bank Brokerage Co. (PBBCO) Analysis Department Ali Ahangar Mahaleh

Transcription

1 Behshahr Industrial Development Corp. (BIDCO) Pasargad Bank Brokerage Co. (PBBCO) Analysis Department Ali Ahangar Mahaleh

2 SBEH1 1 Overview of company Registered under the title Behshahr Cotton Ginning Co. on April 9, 1951, Behshahr Industrial Development Corp. (BIDCO) became a public joint stock company later on February 7, Listed on the Tehran Stock Exchange (TSE) under the stock symbol SBEH1 on March 16, 1995, the company was first traded on June 14, The BIDCO is the largest Iranian producer of edible oil with a capacity of 500,000 tons per year. The facilities can store a total of 100,000 tons of raw oil including 30 large storage tanks with a nominal capacity of 3,300 tons. The tanks have been installed on an area of 100,000 m 2 at Bandar Imam Khomeini (BIK). The facilities host 42 personnel capable of unloading ship cargos at 350 tons/hour. There are also facilities to load oil into tankers and sea shipping containers. The loading capacity amounts to 8,000 and 3,500 tons per day for tankers and containers, respectively. SBEH1 accounted for 35% of the domestic market in 2014 and 31% in The products are exported to Iraq, Afghanistan, Bahrain, Tajikistan, Kyrgyzstan, Kazakhstan, Azerbaijan, Kuwait and the UK. The BIDCO s primary scope of activity revolves around the operation of several factories for cotton ginning, oil extraction, oil refining, etc. as well as the production of various types of oil, cotton, Linter and cottonseed meal. The secondary activities of the company are the production, purchase and sale, packaging and distribution of food products such as ketchup, sugar cubes, sugar, grains, rice, tea, pasta, noodles, nuts, dried fruit, juice, tomato paste, canned products, compotes and mineral water. In an effort to supply the ever-increasing consumer needs and market demand, the BIDCO has begun to produce packaged sugar and sugar cubes under its brand name, Ladan, since January Subsidiary companies 1. Behshahr Vegetable Oil Company, Arvand Free Zone (100%) liquidated employee settlement in Behshahr Partogostar Shipping and Support Company (98%) Insignificant financial events No consolidated financial statements available SBEH1 at one glance Company Stock symbol Fiscal year Capital P/E group Last expected EPS Nominal capacity Number of personnel Behshahr Industrial Development Co. (BIDCO) SBEH1 9,30 1,023, , Capital and Shareholder Structure 1 It refers to Behshahr Industrial Development Corp. (BIDCO). Every company listed on the Tehran Stock Exchange (TSE) is represented by a unique stock symbol.

3 The BIDCO s initial capital amounted to 6.5 million IRR. The most recent capital expansion dates back to 2013, when the total sum increased through accumulated profits from 330 billion IRR to 1023 billion IRR (210%). The latest shareholder composition can be seen in the following figure. Shareholder composition 2% 1% 3% 1% 13% Safula Behshahr Sepah Investment 80% Pension Fund Management Service and Investment Modaberan Eqtesad Co. Pars Tousheh Investment Others Turnover at the TSE Three-year trend (IRR) The Status of BIDCO in the industry There are 47 vegetable oil factories operating in Iran. The per capita consumption of this product is approximately 17 kg, which is almost equal to the global level. The Iranian annual demand for vegetable oil amounts to 1,400,000 tons. Supplying 500,000 tons of vegetable oil, BIDCO accounts for over 35% of the total annual household and corporate market share of this product. The company s brand names include Ladan, Ladan Talayee, Bahar and Nastaran. The per capita consumption of this product is approximately 17 kg, which is almost equal to the global level. Ban on Exports from 2014 onwards

4 Afghanistan Azerbaijan Bahrain UK Iraq Kazakhstan Kyrgyzstan Kuwait Tajikistan Factors Influencing the global price of vegetable oil Global economic growth The global economic growth is undoubtedly one of the factors affecting the demand for food products and animal feed. The correlation between the economic growth and the price of oilseeds is inevitable given their role in the provision of human and animal feed. Agriculture Since vegetable oils are made of crude oil as their raw material, which itself is highly dependent on growing oilseeds, agriculture and weather conditions influence the fluctuations in this product s prices. Crude oil prices The fluctuations in crude oil prices lead to changes in biodiesel consumption. Hence, lower prices of crude oil will prevent the cost-effective production of biodiesel, resulting in an excess supply of vegetable oil and consequently price decline. Raw materials: crude oil 1. Palm oil (African oil palm: It accounts for 35% of the world's supply of edible oils. The largest palm oil producers are Malaysia, with 18 million tons of exports last year. Indonesia, Philippines and Latin America countries are other major producers. Palm: Pomace cooking oil Palm kernel: cosmetics Various applications from biodiesel to

5 Indonesia and Malaysia are the world s largest palm oil producers and exporters, accounting for a combined 84% of the production volume. Moreover, India is the world s largest palm oil importer, covering 22% of the total market. Palm Oil Production 16% Indonesia 47% Malaysia 37% Other Price trend of palm oil

6 Palm Oil prices (USD) Palm Oil 2. Soybean Oil: It is the main competitor of palm oil and the most widely used type of vegetable oil produced worldwide. The global popularity of this product lies in its abundance, low cost and high quality. Over a fairly wide thermal range, soybean oil stays in liquid phase. Moreover, it contains a huge amount of unsaturated compositions, making it unsuitable for frying purposes. It is rather used in mayonnaise and margarine and such foods as rice at low temperatures. The US and Brazil are the largest soybean producers, while Argentina is the largest exporter of soybean covering 19% of the global market. Moreover, India is the largest importer of soybean (21%).

7 Soybean Oil Production USA Brazil Argentina China India Other Soybean prices (USD) Soybean oil 3. Sunflower: The sunflower oil seeds are obtained through mechanical pressure (pressing), solvents or a combination of the two. Sunflower seed is one of the most valuable oilseeds, with sunflower oil accounting for about 30% of the total vegetable oil produced worldwide.

8 Ukraine and Russia are the largest producers of sunflower oil, accounting for 27 and 25% of the market, respectively. Moreover, India is the largest importer of sunflower oil with 25% of the total market. Sunflower Oil Production Ukraine Russia Europe Argentina Turkey Other

9 Sunflower oil (USD) Sunflower oil Partnership agreement with margarine According to a contract signed with Margarine Co. aimed at enhancing the production efficiency and optimization, both parties agreed to exchangeable Job production under commission terms for 18 months (one year plus 6 months extendable). In fact, the BIDCO shall refine, produce and pack the products ordered by Margarine Co. by a maximum of 6,100 tons per month. In return, Margarine Co. shall refine, produce and pack (if necessary) the orders placed by BIDCO by a maximum of 6,400 tons per month of undyed oil. The trust assets transferred from Margarine Co. to BIDCO amounted to a total value of 63.5 billion IRR and book value of 18.6 billion IRR until the end of the fiscal year report on 06/21/2014 according to Margarine s GLs. Moreover, the total value and book value of trust assets transferred from BIDCO to Margarine Co. amounted to 2,331 billion IRR until the end of fiscal year report. Additionally, the transferred assets are deemed trust, where the costs of repair and maintenance will be paid by the company utilizing the equipment, while the premiums and shipment fees will be paid by the asset owner. Income Statement Description (9 months) 2015 (forecast) 2016 (forecast) 2015 (analytical) 2016 (analytical) Sale 17,525,777 19,883,296 15,289,182 21,463,981 20,723,945 20,837,788 22,737,270 Cost of commodity sold -13,513,331-17,193,586-13,259,412-18,722,760-17,685,546-18,103,324-19,931,140 Gross profit 4,012,446 2,689,710 2,029,770 2,741,221 3,038,399 2,734,464 2,806,130 Sale, administrative and general costs -447, , , , , , ,955 Other net earnings and operating costs 232, , , ,600 41, ,600 46,452

10 Operating profit 3,797,463 2,529,673 1,933,751 2,581,376 2,578,241 2,530,105 2,324,627 Financial costs -155, , , , , , ,200 Net earnings from investment 57,021 82,836 29,375 41,358 35,000 41,358 35,000 Miscellaneous Net income/expense 106,746 68,400 76, ,224 81, ,224 81,000 Profit prior to tax deduction 3,806,142 2,083,148 1,740,227 2,295,458 2,309,241 2,244,187 2,086,427 Taxes -1,025, , , , , , ,607 Net profit 2,780,240 1,488,677 1,285,267 1,733,046 1,743,537 1,683,140 1,564,821 Capital 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000 EPS 2,718 1,455 1,256 1,694 1,704 1,645 1,530 Calculation of commodity cost Type of oil Weight Source Sunflower (USD) Palm (USD) Soybean (USD) Description Oil price (USD) USD exchange rate CPT cost Clearance cots Domestic transport cost for raw oil (IRR) Raw oil price delivered at factory Assumptions , % ,710,352 Assumptions , % ,620,308 Key points: The conversion rate from crude oil to vegetable oil was considered to be The sales, general and administrative costs were applied by 10% growth in Overhead costs were considered to be 12% in 2016, while the compensation cost was 17% in The currency exchange rate for 2016 was considered to be 33,208, which grew by 10% compared to According to an approval by the Board of Directors, Iranian Vegetable Oil Industries Association, the vegetable oil producing companies are obliged to pay 1500 IRR per kilogram of raw. The auditor shall report the company s disagreement with the payment terms and exclusion from

11 the income statement. This figure has not been included within the report. The company will experience excessively negative balance if the company is obliged to pay the costs above. The vegetable oil sale in 2016 was assumed to grow by 10%. The cost of customs clearance in 2015 was 10% for the import of palm oil, 10% for soybeans and 7% for sunflower oil. The company s products will be priced by the Consumer and Producer Protection Organization (CPPO). Dividend payout ratio was 50% for 2015 and 60% for Valuation Description Terminal value Estimated 2016 Estimated 2015 Shareholder free cash flow 8,237,292 1,729,831 1,830,471 Discount rate 153% 123% 124% Shareholder free cash flow discounted 5,370,312 1,402,376 1,472,032 Value per share (IRR) 8,059 Description Terminal value Estimated 2016 Estimated 2015 Corporate free cash flow 10,483,827 1,729,831 1,830,471 Discount rate 153% 123% 125% Corporate free cash flow discounted 6,853,780 1,408,888 1,469,266 Value per share (IRR) 9,504 Fiscal year Terminal value 2016 Estimated 2016 Estimated 2015 Inflation in Iran 12% 12% 13% Rf 21% 21% 22% β 0.94 Rm - Rf 2.5% 2.5% 2.5% Re 23% 23% 24% EPS 1,645 Dividend payout ratio 50%

12 DPS (IRR) 3, DPS discounted (IRR) 4, Terminal value (IRR) 7,887 Value per share (IRR) 6,459 BIDCO Method Value per share (IRR) FCFE FCFF DDM Estimated weight percentage Adjusted value per share (IRR) 8,059 9,504 6,459 33% 33% 33% Conclusion The increase in the sales rate of products will be a key potential for growth. Since raw oil is imported, any increase in the raw materials and volatility in dollar exchange rate will become major risks. Given the stock valuation of SBEH1, the intrinsic value will amount to 7,927.