Company at a glance. Established in 1983 by the Charoen Pokhpand Group, Bisi International (BISI) is Indonesia’s largest producer of hybrid seeds for corn, rice, vegetables and fruit segmented to the domestic market. BISI also has a major role of producing pesticides and distributor of fertilizer. BISI has a strategic partnership with Monsanto, a globally exposed seed producer based in United States. Its 2010 revenue segments are corn seeds (34%), vegetable seeds (23%), pesticides (35%), rice (6%) and fertilizer (1%).
· Vertically-integrated seed production business model. BISI’s hybrid production is done by using contract-farmers’ land for producing its hybrid seeds. These hybrid seeds are then sold to agents spread throughout Indonesia. Domestic farmers mostly prefer to use hybrid seeds compared to conventional seeds as the hybrids are able to generate higher profits. In terms of cost, raw materials contribution to production cost in 2010 was 48%, a significant drop compared to 76% in 2009 as BISI has excess of inventory from the previous year to be sold. The hybrid seed industry remains attractive as low hybrid seeds usage in Indonesia is a precursor of better days to come. Indonesia uses only 59% of the corn land to plant hybrid seeds, on the flipside, neighboring countries such as Thailand uses 95% according to FAO stats. Strengthening the aforementioned fact, the Ministry of Agriculture sets a positive outlook for the corn seed hybrid usage market going forward, hence reducing the proportion of the conventional seeds (exhibit 2).
· 1Q11 gross profit hurts by weather disruptions. 1Q11 net profit reached IDR42bn (+65% q-o-q) mainly due to lower opex. However, sales declined 3% q-o-q on the back of lower sales volume as weather disruptions remain to hamper farmers to plant hybrid seeds. As the production weakens, BISI’s strategy was to cut down operation costs such as reducing selling agents. This can be reflected by the company’s 50% decline in opex to IDR37bn, enabling BISI to boost operating profit to IDR51bn (+172% y-o-y). According to the management, corn seeds production is expected to pick up in 2H11 assuming weather conditions would be better.
source: OSK Research