Investor Presentaiton
Iñaki Oviedo
[email protected]
+52 (55) 5480 5800 ext. 4429
October 12, 2021
PROTEAK: AFTER ALL,
MONEY DOES GROW ON TREES.
Initiating Coverage
GBM
We are initiating coverage on Proteak (TEAK), with a price target of P$18.2 (+264% upside) and a Market
Outperformer rating on the stock. Proteak is a forestry and wood products firm. It owns over 7,000 hectares (ha.)
of teak, a premium timber that is part of the US$37 billion wood furniture supply chain. It also owns some 6,000
ha. of eucalyptus that is used as feedstock for its MDF panel board mill. Proteak is reaching a turning point: its
teak farms are nearing harvest ages, while more rational competition and surging demand have stabilized prices
in the MDF segment.
Why is the market ignoring a triple-digit upside potential? Since its IPO in 2010 to mid-2014, Proteak's stock
hovered around its initial price of P$10.36 per share, on the back of the long-term nature of its Teak unit. Later,
in October 2016, the name rallied to an all-time high (P$21.7) in anticipation of the start-off of the MDF unit. The
latter promised to pull cash flows forward, but heavily discounted imports depressed prices, prompting subpar
results and a sell-off (currently trading at P$5 per share).
2021 vs. 2010 IPO: Today, Proteak has three times more teak plantations than in 2010. Back then, its oldest farms
were twelve years away from reaping and the MDF unit didn't exist yet. Now, we expect the harvesting period to
start in 2022. Yet, the stock is trading below its IPO price, which proves how the market has forgotten about Proteak.
Recently improved market dynamics have stabilized MDF prices. Moreover, the intrinsic value of the Teak unit
keeps increasing as plantations near harvest ages (starting in 2022, GBMe). We are convinced that recency bias
has led to a great entry point into a high FCF generating business that is reaching a turning point in both of its
segments. The margin of safety: Current valuations stand below our fair value estimate for the MDF unit (P$6.1
per share) and assign nil value to the Teak unit.
Highlights of our document:
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Aerial footage: Management provided us with footage of its hectares and mill, which will help investors grasp
Proteak's assets and business model. (View Video)
Teak supply chain (Slide 9-13): We explore teak import data from major global buyers. Also, we explain the
increased market share that LatAm producers have grabbed.
Proteak's teak (Slide 14): We read all the company's annual reports to estimate the age of its farms and when
they will be harvested.
Implied valuation (Slide 26-27): A strip-down approach and a rejected JV offer reaffirm the margin of safety.
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Strip down: Investors are acquiring the teak unit for free. If we only valued the MDF unit and future carbon
credit issuances we'd arrive at a P$5.91 valuation (+18%).
Rejected 2019 JV offer. The proposal entailed contributing 1,800 hectares of teak at a US$50 million
valuation. This would imply a price of P$7.1 per share (42% upside) if no value is assigned to the MDF unit.
ESG (Slide 23): Proteak's forestry management practices are constantly audited by FSC, a leading NGO in the
sector. Financial benefits will range from the issuance of carbon credits (adding P$0.9 to our price target) to
easier access to global supply chains.
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