Krungsri Secirities

Standing at Thailand’s largest cassava-based producer and fourth in ethanol production, Ubon Bio Ethanol Public Company Limited (UBE) will kickoff its first trading day in the Thai stock market on September 30, 2021, at an initial public offering price of 2.40 baht. UBE is Thailand’s largest cassava-based ethanol producer, dividing its business into three segments: ethanol, starch and flour, and organic agriculture. The company offered no more than 1,370,000 shares (35% of total issued shares after IPO) divided into 1) Newly issued shares no more than 1,174,286,000 shares, 2) Existing shares offered by Thai Oil Ethanol Company Limited no more than 97,857,000 shares, and 3) Existing shares offered by BBGI Public Company Limited no more than 97,857,000 shares. The company stated that it received an overwhelming subscription during the IPO period, which reflects confidence and trust in UBE on its fundamental and potential growth in the future. The first trading day in the Thai stock exchange will be on September 30, 2021. Krungsri Securities (KSS) stated that UBE is well-positioned to capture growing demand for ethanol and organic food. Ethanol demand could double once the government replaces E10 with E20. The company will launch several organic starch and flour products for food applications. KSS forecasted EBITDA to grow by 15-20% pa in FY21-23G and the group's net profit would grow by 233%, 35% and 20%, respectively. The securities company expected EBITDA will be more stable as contribution from ethanol will decline from 73% in 1H21 (27% from starch and flour) to 40% by 2026 (vs 30% of UBE’s target), while EBITDA from starch and flour will increase from 27% to 55% (65% of UBE’s target). GPM should improve from 15% in 2020 to 20% in 2026F. More importantly, UBE is strategically located in Ubon Ratchathani province, a cassava farming hub. They have contracts with farmers to supply cassava chips and with some using organic fertilizer. UBE plans to launch more organic starch and flour in food applications (noodle, bread, chips) by expanding flour capacity from 100 tons/day to 300 tons/day in 2022. UBE aims to build an ecosystem for cassava flour for Thai consumers to replace the imported wheat flour. According to KSS, UBE budgets its capex in 2022-26 for Bt440m, Bt450m, Bt77m, Bt74m, and Bt77m respectively. UBE plans to use the proceeds from the IPO for these expansions. This includes expanding ethanol capacity by 10%, expanding flour production capacity by another 200 tons/day (to 300 tons/day), growing organic coffee, and expanding high-value sweetener lines and increasing efficiency of cassava flour. These will be spent in 2022-23. UBE plans to use the IPO proceeds to repay loans and set aside some budget for future M&A, which would be more related to starch and flour businesses.