Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (USA) Inc View HSBC Global Research at: https://www.research.hsbc.com THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA COVID-19 disruptions in agribusiness look largely manageable We highlight our preferred stocks in the space – defensive and/or deeply undervalued names We like ASF-related stocks (Wens, Cranswick, Rumo) and oversold agchem names (NTR, UPL, OCI, Xinyangfeng) Agribusiness Playbook: Focus on bottom-up ideas COVID-19 has affected some parts of the agriculture value chain, but the essential nature of the business appears to have kept the disruption to manageable levels. As the situation is fluid, we shift the spotlight to a bottom-up approach to investments. Our preferred stocks in the space have one or more of these three factors we see as needed to deliver share price outperformance: defensive characteristics, solid structural trend and deeply undervalued multiples. African swine fever (ASF) remains a central theme; there is now strong evidence of hog herd recovery in mainland China, which should benefit Wens Foods, Cranswick and Rumo. Although their share prices have recovered in the past month, valuations for our seven preferred stocks remain at below their historical or recent averages (Page 2). Wens Foods, a leading meat producer in mainland China, is likely to see its market share in the hog industry grow exponentially through 2025e, based on our estimates. Cranswick, UK’s leading food company, is benefitting from a period of high demand given higher consumption of meals at home and export demand from mainland China. Rumo, the largest rail transportation company in Brazil, is benefitting from favorable FX rates and strong soybean demand from mainland China due to significantly high crush margins and low soy inventory levels (lowest since November 2013). Nutrien, the world’s largest fertilizer company, is seeing strong demand for crop input products. Its staple-like retail operation could mitigate wholesale weakness to a large extent. UPL, the fifth largest agchem company globally, is a consistent industry outperformer whose valuation is compelling with strong cash generation even in our bear case. OCI NV, a leading nitrogen producer, has seen its share price corrected significantly, mainly due to debt concerns although we see a path to rapid deleveraging in the next few years. Xinyangfeng, mainland China’s largest phosphate producer, is a classic case of a bottom-up idea as its product spreads are improving given its low-cost advantage even as the industry faces oversupply issues in the short run. 22 April 2020 Alexandre Falcao Global Ag/EV Materials & LatAm Industrials Analyst HSBC Securities (USA) Inc. alexandre.p.falcao@us.hsbc.com +1 212 525 4449 Santhosh Seshadri*, CFA Analyst HSBC Securities and Capital Markets (India) Private Limited santhosh.seshadri@hsbc.co.in +91 80 4555 2758 Nicholas Paton*, CFA Senior Analyst HSBC Bank Middle East Ltd nicholas.paton@hsbc.com +971 4 423 6923 Saurabh Jain* Analyst HSBC Securities and Capital Markets (India) Private Limited saurabh2jain@hsbc.co.in +91 22 6164 0691 Eric Shen* (S1700519030001) Head of A-share Petrochem & New Materials Research HSBC Qianhai Securities Limited eric.shen@hsbcqh.com.cn +86 10 5795 2343 Andy Li* (S1700519070001) Head of A-share Agriculture Research HSBC Qianhai Securities Limited andy.j.li@hsbcqh.com.cn +86 21 6081 3812 Doriana Russo* Analyst HSBC Bank plc doriana.russo@hsbc.com +44 20 3359 5588 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Global Agribusiness Equities Agribusiness Global Sector Playbook: We all need to eat Equities ● Agribusiness 22 April 2020 2 Recent reports Climate change, coronavirus and soft commodities, 4 February 2020 Global Agribusiness: US-China trade deal playbook, 5 February 2020 Expert call takeaways: both long-term production and capacity recovery likely to be affected by NCP. 17 February 2020 Sow inventory continues to recover; we remain bullish on industry leaders. 18 March 2020 Global Agribusiness: COVID-19 and beyond: Better the bird in hand. 2 April 2020 HSBC Global Agribusiness and Food – analysts’ preferred stocks BBG Latest Target Implied Mkt Cap ___ EV/EBITDA (x) ____ PE (x) ___ Company Code Category CCY Rating Price Price Upside (USDm) 2020e 2021e 2020e 2021e African Swine Fever-related stocks Wens Foodstuff Group 300498 CH Food CNY Buy 30.76 45.00 46.3% 23,102 4.8 5.3 5.9 7.2 Cranswick CWK LN Food GBP Buy 36.60 38.60 5.5% 2,386 13.8 12.5 23.7 22.0 Rumo SA RAIL3 BZ Transportation BRL Buy 20.04 22.50 12.3% 5,901 10.0 8.0 33.7 20.2 Agchem Nutrien NTR US Chemicals USD Buy 35.99 47.00 30.6% 20,622 6.8 6.1 19.3 15.6 OCI NV OCI NA Chemicals EUR Buy 11.51 18.60 61....
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