27th March 2019

INITIATION COVERAGE – EQUITY RESEARCH

BISI International (BISI)

Agriculture | Retail

Company Overview
BISI established in 1983 and listed in the stock exchange since 2007. BISI operate a business on producing seeds such
as corn, paddy, vegetables & fruits, pesticides & fertilizer, etc. Based on the latest Articles of Association, the company
has 5 scopes of businesses:
1. Engaging in general trading (export-import, wholesale, supplier, distributor)
2. Engaging in general industry, among others feed mill industry and livestock
3. Engaging in agriculture including cultivation of seedlings and germination of food crops and any other plants
in general, plantation and livestock
4. Engaging in general land transportation, forwarding, and warehousing to support trading business
5. Acting as an agent of other companies either domestic or foreign
6. Engaging in the service business (except legal or taxation services)
The company has 3 production facilities on seed production units and 13 research facilities located in East Java, Central
Java, West Java, Bali, West Nusa Tenggara, North Sumatera, and Lampung. BISI has three subsidiaries which fully
owned and controlled by the company. BISI is controlled by Jiaravanon Family from Thailand. The family also owns
and controls Charoen Phokphand Indonesia (CPIN IJ; Not Rated).

Figure 1: Ownership Structure (source: BISI)

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INITIATION COVERAGE – EQUITY RESEARCH

Business segment/product
Since 2010, corn seed has been becoming the most contributor to company’s revenue with pesticides & fertilizer. At
the time, corn contributed only 34%. After 2012, corn seed and pesticides & fertilizer increase its contribution to
revenue. In 2017, corn seed breaks its record by contributing 51% of total revenue. although these two products
growth are high, unfortunately, the other businesses tend to be stagnant. The company heavily depends on corn seed
and pesticides & fertilizer segment.

Figure 2: Segmentation of the company's revenue in 2017 and 2016 (source: BISI)

%Sales 2017 %Sales 2016

0% 0% Hybrid corn seed

Vegetable & Fruit

36% Seeds
38% 44%
Hybrid Paddy Seed
51%
Pesticides &
12% Fertillizers
1% 16%
2% Others

Figure 3: Revenue of each product from 2010 - 2017, in Million Rupiah (Source: BISI)

Rp1.400.000

Rp1.200.000

Rp1.000.000

Rp800.000

Rp600.000

Rp400.000

Rp200.000

Rp-
2010 2011 2012 2013 2014 2015 2016 2017

Corn Seeds Veg & Fruit Seeds Paddy Seeds Pesticides & Fertillizer Others
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INITIATION COVERAGE – EQUITY RESEARCH

Figure 4: Revenue Breakdown, in million rupiah (Source:BISI)

Rp2.500.000

Rp2.000.000

Rp1.500.000

Rp1.000.000

Rp500.000

Rp-
2010 2011 2012 2013 2014 2015 2016 2017

Others Pesticides & Fertillizer Paddy Seeds Veg & Fruit Seeds Corn Seeds

In 2017, there was no sales transaction involving any single customer with annual cumulative sales exceeding 10% of
consolidated net sales. But, in 2016, there was 1 cumulative sales which exceeded 10% of consolidated net sales by
PT Daya Merry Persada amounted Rp 196 billion. In 2017 related parties had a quite significant transaction with BISI,
with PT Charoen Phokpand Jaya Farm as the highest transaction consist of 9,45% of total sales.

Figure 5: Sales of finished goods to related parties in 2017 (source: BISI)

9,45%
PT Charoen Phokpand Jaya
Farm
Tanindo Seed Private Ltd,
India
PT Sinar Hidup Satwa

Pt Central Protelnaprima Tbk

Chia Tai Seeds Co. Ltd,

Thailand
PT Centralpertiwi Bahari
1,45%
0,66% 0,58% Others
0,28%
0,01% 0,13%
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INITIATION COVERAGE – EQUITY RESEARCH

Market share
In the Corn seed segment, BISI is the leader in the market with market share 49,5%. Its main competitor is Pioneer
(Dupont), Monsanto, and Syngenta, which have global genetic resource network. BISI is able to compete with these
global players because of its distribution ability, marketing, and stock availability.
In the fruit and vegetable segment, BISI obtains a 33% market share in fruits seed and 35% in the vegetable seed. Its
competitors are multinational companies with research facilities in Indonesia, importers, trading companies, and
newly emergent small-scale companies. In 2015, BISI had more market share compare to 2017 with 39%. East West
dominate the market with 40%, Prima 5%, and others 16%.
In pesticides segment, BISI only obtains 9,5% market share. Its competitors are multinational companies which have
been dominating the Indonesian market with brands which farmers familiar with them such as Syngenta (24,9%),
Nufarm (12,8%), Bayer (11,2%), Dow (10%), and others (31,7%). Other than that, there are local companies whose
main strategy is to offer lower prices. For fertilizer, the company’s competitors are state-owned enterprises which are
subsidized by the government. Therefore, BISI only produces leaf fertilizer which penetrates a specific market.

Figure 6: Corn seed market share in 2017 (Source: BISI)

corn market share fruit market share Vegetable market share

33,00
% 35,00
50,50 49,50 %
% % 65,00
67,00 %
%

BISI others BISI others BISI others

pesticides market share

9,50%

90,50
%

BISI others
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INITIATION COVERAGE – EQUITY RESEARCH

Industry review
The main contributor to company’s income is hybrid corn seed which shown with a high growth in recent years. Thus,
the we focus our industry review in corn industry. Our research found that there is a dispute on reliability of
government’s data on corn industry. Government’s data is considered out of sync which showed by the high price of
corn on the production surplus situation in recent years (based on government’s data). Therefore, in this article we
are using USDA data which considered more accurate and has a better approach on the real situation.
Increase production target to reduce deficit
From 2004 to 2018, Indonesia only once that the local production fulfills the consumption demand which was
happened in 2007. There were declining consumptions in 2017 and 2018 whereby there was a miss calculation from
government on calculation of available corn stock (because of the inaccurate of the data). At that time, government
reduce the import on corn, which led the shortage of corn and increase its price, and the whole supply chain on
poultry product skyrocketing.
Figure 7: Indonesian corn production, consumption, & deficit, in million MT (source: USDA)

18,0
16,0 15,3
14,5 14,9
13,7 14,1
14,0 12,6 13,0 13,4 0,1 0,0
12,2 12,7 12,2 12,4 0,4
0,3 0,2
12,0 11,5
10,7 1,3 0,4 0,7 0,6 0,5
10,3 10,5 1,7 2,4 3,2 3,3
10,0 8,8 8,8 1,7
8,3 8,1 8,5
8,0 1,5 1,9 3,5
0,3 0,0 0,1
6,0
4,0
2,0
6,8 7,9 8,5 8,7 6,9 6,8 8,9 9,0 9,1 9,0 9,4 10,9 11,9 12,0 12,4 12,9 13,3 13,8 14,3 14,8 15,3
-

Production Deficit Consumption

Rising domestic corn price has reduced feed mills’ profit margins. In addition, difficulties in meeting demand for energy
sources in feed due to domestic corn supply shortages and high prices reduced the amount of corn in feed rations to
30 - 40 percent, compared to 50-60 percent in 2016. The poultry industry consumes approximately 87 percent of
domestic animal feed supplies; aquaculture, 8 percent; and cattle and swine, the remaining 6 percent (USDA, 2018).
Continuous growth of the middle class will drive higher demand for protein sources in daily diets. Consumer
preference for more practical, processed chicken meat has led broiler growers to produce heavier birds, resulting in
a longer growing period and more feed consumption.
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INITIATION COVERAGE – EQUITY RESEARCH

Figure 8: Animal Feed Supplies consumer in Indonesia (Source: USDA, 2018)

6%
8% poultry

aquaculture

cattle, swine,
87% and others

Indonesian Government is targeting 33,13 million MT corn production in 2025 which is 40,5% higher than production
in 2016 (using government data). This target was set to fulfil the demand on the increasing of animal feed demand
which caused by the increasing of middle income who demanding more protein intake. Using USDA data, production
in 2025 is equal to 15,26 million MT. head of Puslitbangtan (centre of research and development of crops), M. Ismail
Wahab, said that current situation 44% of the total production is using composite corn seed (February, 2019). This
seed has low productivity (3,32 - 5,31 ton per ha), which is 70% lower than hybrid corn seed (8,02 – 10,31 ton per ha).
Therefore, the national corn productivity remains low.
Increasing productivity to achieve production target
According to USDA data, harvested area for corn is growing slowly in 10 years, which increases only 440.000 hectares
(15% from 2009/2010). Productivity has increased 52% in 10 years from 2,25 ton/ha become 3,41 ton/ha. However,
it is still categorized as low productivity. In order to achieve the target corn production 15,26 million MT in 2025, with
the average growth of harvested area of corn, it means that the productivity need to be increased to become 4,08
ton/ha. To achieve this target, the utilization of hybrid seed needs to be increased. There are ample potentials for
hybrid seeds producer like BISI to penetrate.
Figure 9: National Corn Productivity (source: USDA)

4,5
4 3,62 3,66 3,7 3,74 3,78
3,45 3,5 3,54 3,58
3,3 3,4 4,04
3,5 3,06 3,08 3,12 3,12 3,14 3,59 3,68 3,77 3,86 3,95
2,85 3,45 3,41 3,50
3 3,21
2,5 2,87 2,88 2,92 2,87 2,85
2 2,25 2,39
1,5
1
0,5
0

harvested area (Mn ha) Productivity (ton/ha)

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INITIATION COVERAGE – EQUITY RESEARCH

Company’s Performance
Infamous Superior Company
In Indonesia, Agricultural company specialized in farming which listed in IDX only BISI International. Therefore, we
compare the performance of BISI with other companies in other country which the businesses are similar to BISI.
Price to Book ratio (P/B, TTM) is similar with most of other companies, between 1,2 to 2,64. However its Return on
Invested Capital is the highest among the others. Compared to a large brand and companies like Monsanto and
Syngenta, BISI lead the average 5 years of ROIC with much lower P/B (TTM) with ROIC 20,2%, much higher than
Agriculture Sector. Moreover, average 5 years Net Profit Margin of BISI also better than other companies, with Price
to Earning ratio (P/E, TTM) be the lowest (10,46).

Figure 10: P/B and ROIC of corn seed producers in the world (source: Integra Sistem Optima)

25,00
BISI
20,00
ROIC (avg 5-y) %

Monsanto
15,00
Syngenta

10,00 KWS AG
Sakata
AGRI (sector) Takii
5,00
DuPont
-
- 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00
P/B (TTM) x

Figure 11: P/E and net profit margin of corn seed producers (source: Integra Sistem Optima)

18,00 BISI
Monsanto
16,00
14,00
NPM (avg-5y) %

12,00 Syngenta Bayer CropScience

Sakata
10,00 KWS AG
8,00
6,00 Takii Dupont
4,00
2,00
AGRI (sector)
-
- 10,00 20,00 30,00 40,00 50,00 60,00
P/E (TTM) x
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INITIATION COVERAGE – EQUITY RESEARCH

If we look at the historical price of BISI, this company’s share price is stagnant for 3 years in range Rp1.200 – Rp2.000.
It has a low volume trading activity in the stock market. It is understandable since the domestic retail shareholders
are consist only 9% of the total issued shares.

Figure 12: historical price of BISI (source: Stockbit)

Figure 13: Current Shareholders, 2018 (source: Adimitra)

Foreign
investor PT Agrindo
(<5% Pratama
ownership) 31%
37%

Midsummer
Ltd
domestic
23%
investor
(<5%
ownership)
9%
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INITIATION COVERAGE – EQUITY RESEARCH

High-quality yet Undervalue

We also checked the P/E & P/B with standard deviation + 2 and P/E price band within historical 3 years data. These
three data provide a conclusion that BISI at current condition is undervalued. By comparable analysis valuation
method, BISI should be valued at P/E 15,5 or P/B at 2,54 or price at Rp2,163.

Figure 14: Relative value of P/E, P/B, and price band of BISI for 3 years historical data (source: stockbit.com)
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INITIATION COVERAGE – EQUITY RESEARCH

To understand the company’s performance deeper, we tried to calculate the intrinsic value of the company using
Discounted Cash Flow analysis method. Based on calculation, by assuming WACC of 14,69% (risk free rate of 7,64%,
beta of 0,82x, equity risk premium of 8,60%) with a terminal growth rate of 5%, BISI price should be at Rp2.453.
Using these 2 methods (DCF and comparable relative analysis), by weighing each method by 50%, then we initiate our
coverage on BISI with an OUTPERFORM rating and target price of Rp2.300 per share.

Figure 15: DCF Valuation

Risk Free Rate (Rf) - 10 year bond 7,64%
Equity Risk Premium (Rm-Rf) 8,60%
Beta 0,82
Cost of Equity (Ke) 14,69%
Cost of Debt (Kd) 0%
tax rate 25%
WACC 14,69%
NPV of FCFF (billion) Rp1.531
NPV of Terminal Value (billion) Rp5.621
Terminal Growth Rate 5%
Enterpriser value (billion) Rp7.152
+cash (billion) 207
-debt (bililon) 0
Equity Value (billion) Rp7.359
Equity Value (billion per share) Rp2.453
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INITIATION COVERAGE – EQUITY RESEARCH

BALANCE SHEET (in Billion Rupiah) 2016 2017 2018 2019 2020
CURRENT ASSETS
Cash and Cash Equivalent 380 536 207 915 1.434
Trade Receivables (3rd party) 938 819 931 866 827
Trade Receivables (Related party) 10 12 15 13 13
Trade Receivables (others) 2 2 1 2 2
Inventories 689 651 826 731 698
Advances 19 16 10 21 20
prepaid expenses 5 7 7 9 10
Prepaid value added tax - 0 9 4 5
Total Current Assets 2.042 2.042 2.006 2.561 3.010
NON-CURRENT ASSETS
Due from related parties - 0 0 0 0
Deferred tax assets 39 33 36 36 36
fixed assets 318 512 588 587 660
claims for tax refund - 10 30 16 17
Other non-current assets 18 25 27 27 28
Total Non-current Assets 374 581 680 666 740
Total Assets 2.416 2.622 2.686 3.227 3.750
CURRENT LIABILITIES
Short-term bank loan - 50 - - -
Account payable (third parties) 122 139 40 115 142
Account payable (related parties) - - 0 - -
Account payable (others) 41 38 26 38 47
taxes payable 48 33 11 38 42
accrued expenses 73 84 88 101 113
short-term employee benefit liabilities 0 0 0 0 0
short term provision 17 18 18 20 20
Total Current Liabilities 302 362 183 313 365
NON-CURRENT LIABILITIES
Due to related parties 0 0 0,1 0,1 0,1
Deferred tax liabilities 1 1 1 2 2
long-term employee benefit liabilities 50 59 68 77 86
Total Non Current Liabilities 51 60 70 79 89
Total Liabilities 353 422 253 392 454
EQUITY
Capital Stock 300 300 300 300 300
Additional Paid-up Capital 100 100 100 100 100
Other component of equity 5 5 5 5 5
Retained Earnings appropriated 60 60 70 80 90
Retained Earnings unappropriated 1.599 1.735 1.959 2.351 2.802
Total Equity 2.063 2.200 2.433 2.835 3.296
Total Liabilities And Equity 2.416 2.622 2.686 3.227 3.750
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INCOME STATEMENT (in Billion Rupiah) 2016 2017 2018 2019 2020
Revenue 1.852 2.310 2.691 3.134 3.522
Cost of Goods Sold (1.048) (1.430) (1.645) (1.885) (2.111)
Gross profit (EBITDA) 804 880 1.046 1.250 1.411
Selling exp. (246) (286) (269) (313) (352)
General & administrative exp. (110) (105) (139) (162) (182)
Other operating expenses (12) (1) (2) (2) (2)
Other operating income 4 13 11 13 15
EBIT 441 500 647 785 889
Interest income 14 19 7 32 50
Finance costs (1) (0) - - -
EBT 454 519 654 817 939
Income tax exp. (118) (116) (131) (163) (188)
EAT 336 403 524 654 751
Earning for company 336 403 524 654 751
Earning for minority interest 0 0 0 0 0
Weighted Average Shares 3 3 3 3 3
EPS to company (full rupiah) 112,0 134,4 174,5 217,9 250,4

CASH FLOW STATEMENT

Net income 336 403 524 654 751
Depreciation 24 26 29 31 33
Change in WC (298) 91 (588) 79 (38)
Other operating cashflows 142 70 (45) 232 176
CF - Operating Activities 205 591 (81) 996 922

CAPEX (41) (220) (105) (30) (106)

Other investing cash flow (1) (1) 3 3 3
CF - Investing Activities (41) (221) (102) (27) (102)

Proceeds from short-term Bank loan - 100 105 - -

Payment of short-term bank loan - (50) (155) - -
payment of dividend (99) (264) (300) (261) (301)
payment of dividend to minority share holders - (0) (0) (0) (0)
CF - Financing Activities (99) (214) (350) (261) (301)

Net increase (decrease) cash & cash equivalent 65 156 (329) 708 520
Effect of change in exchange rate on cash & cash
equivalent 0 0 0 0 0
Cash - begin of the year 315 380 536 207 915
Cash - end of the year 380 536 207 915 1.434