Bci Stock Market recommendations Sector Forestry
2018 Outlook Forestry Sector
Sector View
2018 Outlook
- Increasing demand for Pulp has led to an upward price cycle in 2017, which we estimate would be followed by gradual declines in 2018 due to ramp-up of new projects. However, lack of new Pulp projects translates to a positive price scenario by 2019-2020. This has resulted in upward revisions to our flow projections for companies under our coverage. We expect a favorable scenario in the Forestry sector amid a strong demand capable of absorbing large amounts the new supply in the market.
- Considering the increase in Pulp supply, prices would slightly drop in 2018 reaching ~US$838 for short-fiber and ~US$874 for long-fiber, before rising from a lack of new Pulp projects (US$1.000 and US$1.050, respectively in 2020). In this realm, we estimate the medium term softwood-hardwood spread at ~US$50/Ton. For its part, we estimate that in the long term, attractive Pulp prices would encourage entry of new plants, thus we have incorporated long term prices of US$800 for short-fiber and US$880 for long-fiber in our models.
- M&A in Empresas Copec continues to drive inorganic growth, generally at high EV/Ebitda acquisition ratios, thus the contribution to valuation is lower. Our top pick in the sector is CMPC, offering greater exposure to Pulp, a commodity in which we are positive and expect better flows once the Guaíba II mill resumes operations in November 2017.
Risks
- Deceleration in China triggering transversal contraction of demand for natural resources, reflected in declining Pulp prices, causing misalignment to our baseline scenario.
- Economic growth below expectations in Latin America, United States and Asia, limiting expenditure on construction and favorable perspectives in the wood board industry.
- Ebitda generation below our projections, leading to deterioration of the balance sheet and increases in debt ratios, beyond possible mitigation measures (sale of non-core assets).
- Rate hikes by the Fed in 2018 would cause greater than expected devaluation of the Yuan, exerting downward pressures on commodity prices in USD.
- Pulp mill maintenance downtimes beyond expectations would impact our forecasts.
Peers
| P/E | P/B | EV/EBITDA | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | Countrye | T.P. 2018E | Last Price | Upside | Div. Yield 2018E | Market Cap (USD mn) | YtD return | 2017E | 2018E | 2017E | 2018E | 2017E | 2018E |
| CMPC | Chile | 1,980 | 1,806 | 9.7% | 0.4% | 7,165 | 31.9% | 72.4 | 26.3 | 0.9 | 0.9 | 10.4 | 8.3 |
| Copec | Chile | 8,160 | 8,699 | -6.2% | 1.5% | 17,946 | 35.5% | 26.1 | 24.2 | 1.7 | 1.6 | 10.8 | 10.9 |
| Masisa | Chile | 60 | 49 | 22.6% | 0.5% | 609 | 44.9% | 46.1 | 50.8 | 0.6 | 0.6 | 8.3 | 7.3 |
| Peers | |||||||||||||
| Fibria | Brasil | - | 48 | - | 1.5% | 8,333 | 49.6% | 14 | - | 1.9 | - | - | 5.3 |
| Suzano | Brasil | - | 20 | - | 1.8% | 6,856 | 38.5% | 22.3 | - | 2.1 | - | - | 6.6 |
| International Paper | US | - | 57 | - | 3.2% | 23,549 | 7.5% | 20.7 | 13.4 | 5.2 | - | 12.2 | 7.8 |
| Stora Enso | Finlandia | - | 13 | - | 3.0% | 8,378 | 22.5% | 20.5 | 14.1 | 1.8 | 1.7 | 10.5 | 8.1 |
| Duratex | Brasil | - | 10 | - | - | 2,116 | 42.6% | 35.6 | - | 1.4 | - | - | 8.8 |
Recommendations Sector Forestry
Companies under coverage at Sector Forestry: