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KGI initiates coverage on Don Agro with ' outperform' , TP 64 cents
KGI Securities has initiated coverage on wheat and milk producer Don Agro International with an " outperform" rating and target price of 64 cents.The brokerage believes the company Russia-based company is a " bowl full of opportunities" .
Citing estimates from the US Department of Agriculture' s Foreign Agricultural Service (USDA FAS), KGI notes that wheat demand is forecast to grow almost 18% from 2019 to 2029.
Moreover, wheat, as a staple food source, provides a resilient revenue stream for Don Agro despite changing economic trends, it says.
In addition, the company' s wheat fields in the Rostov and Volgograd regions are among the most fertile in Russia.
For FY2020 ended Dec 31, Don Agro reported y-o-y earnings growth of 66% to $8.7 million.
The FY2020 earnings were more than double the company' s earnings in FY2016 and FY2017, notes KGI.
" Favourably located and well managed, Don Agro is in a sweet spot," KGI analysts Joel Ng and Chen Guangzhi write in a note dated July 23.
As at 2.11 pm, Don Agro was up 3.5 cents or 9% at 42.5 cents with 245,300 shares changed hands.
Hope gapup next week...😁 🚀
Akang datang 😁 ...lets buy more first.....
superstartup ( Date: 23-Jul-2021 15:53) Posted:
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Just like OIO then.
1st day everyone scare to buy. . . Then subsequent days - actions day.
Glad you here bro.
Huat ah !
1st day everyone scare to buy. . . Then subsequent days - actions day.
Glad you here bro.
Huat ah !
luckyfa ( Date: 23-Jul-2021 15:45) Posted:
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Swee buildup....
superstartup ( Date: 23-Jul-2021 13:50) Posted:
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Some liquidity is in.
Hopefully got show in the late afternoon / next Monday.
Hopefully got show in the late afternoon / next Monday.
KGI' s Outperform recommendation and DCG-backed target price of S$0.64 comes up to an approximate upside (incl. dividends) of ~66.9% 
Full report can also be found at the following link: https://www.kgieworld.sg/securities/resources/ck/files/docs/research/Don%20Agro%20International%20(DAG%20SP)_Initiation_OUTPERFORM_KGI%20Singapore%2020210723.pdf
Full report can also be found at the following link: https://www.kgieworld.sg/securities/resources/ck/files/docs/research/Don%20Agro%20International%20(DAG%20SP)_Initiation_OUTPERFORM_KGI%20Singapore%2020210723.pdf
- Don Agro International (Don Agro) is one of the largest agricultural companies in Russia' s Rostov region. It has a stable track record of profitability over the last five years, with net income reaching a record in 2020.
- We expect Don Agro to outperform again this year on the back of strong commodity prices for wheat and corn that are at their highest since 2014.
- We initiate with an Outperform recommendation and a DCF-backed target price of S$0.64.
superstartup ( Date: 23-Jul-2021 11:21) Posted:
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KGI Research - INITIATION
Released today
Don Agro International Ltd (DAG SP)
Initiation: 23 July 2021
Your source of bread and butter
- Don Agro International (Don Agro) is one of the largest agricultural companies in Russia&rsquo s Rostov region. It has a stable track record of profitability over the last five years, with net income reaching a record in 2020.
- We expect Don Agro to outperform again this year on the back of strong commodity prices for wheat and corn that are at their highest since 2014.
- We initiate with an Outperform recommendation and a DCF-backed target price of S$0.64.
Don Agro International continues on its land bank acquisition spree and has even ventured into producing higher margin organic crops. The Edge recently covered the company in an exclusive feature Read more here:
https://www.theedgesingapore.com/issues/company-news/don-agro-recent-lows-bulks-more-land-eyes-lucrative-market-organic-cropsCompany in the news
Not too long after Don Agro International became the first Russian company to be listed on the Singapore Exchange, about 20 of its staff fell ill from Covid-19.
One of them was CEO Marat Devlet-Kildeyev, whose lungs were 70% damaged. As a result, he was fighting for his life in the hospital&rsquo s Covid-19 ward for 25 days.
Devlet-Kildeyev&rsquo s infection coincided with a drop in the company&rsquo s share price from its then all-time-high of 36 cents on May 28 last year. It went as low as 25 cents, wiping out much of the gains made by the winter wheat and dairy producer, which made its debut at 25 cents on Feb 14, 2020. The company&rsquo s IPO price was 22 cents.
Fortunately, Don Agro&rsquo s operations were not impacted significantly by Covid-19. The infected staff were mostly those who were stationed at the company&rsquo s headquarters. Staff working in the production of crops and dairy were able to continue harvesting wheat and milking the cows since they tested negative.
However, the stock fell further to an all-time low of 20 cents on Aug 20, 2020. This came after Don Agro posted a mixed set of results for 1HFY2020 ended June 30. The company&rsquo s revenue had tumbled 60.6% y-o-y to $6.9 million on the back of lower sales of crop production. Earnings were up 3.3% y-o-y to $4.4 million, thanks largely to a 70% gain from change in fair value of biological assets and agricultural produce to $5.5 million.
As for Devlet-Kildeyev, he managed to pull through and is now in good shape after undergoing a two-week rehabilitation programme in Moscow. &ldquo I was close to leaving this world [last year]. But, you know, I survived. And recently, I got vaccinated,&rdquo Devlet-Kildeyev tells The Edge Singapore in an interview.
Shares of Don Agro subsequently rebounded strongly to end 2020 at 36 cents, before hitting a new all-time high of 40 cents on June 1. The stock has since come off a little to close at 39 cents or seven times earnings on July 16, but it is up 77.3% from its IPO price.
Despite the recovery of Devlet-Kildeyev and his staff, Covid-19 continues to be a risk for the company. The number of new daily infections in Russia has risen sharply since early June to more than 25,000 cases this month. Record Covid-19 deaths were registered five days consecutively to 697 on July 3.
Don Agro&rsquo s financial performance continues to be mixed. For FY2020, the company&rsquo s revenue declined 12.5% y-o-y to $31 million on the back of lower sales of crops. This was the result of lower yield due to bad weather conditions. Earnings were up 66.5% y-o-y to $8.7 million, thanks to a 41.5% jump in gain from change in fair value of biological assets and agricultural produce to $9.2 million.
So, how will the company&rsquo s financial performance and share price fare ahead?
Mitigating risks
Unlike many other companies, Don Agro is unlikely to be affected by lockdowns. Key industries such as agriculture are deemed to be &ldquo strategic&rdquo to the &ldquo well-being&rdquo of the country, Devlet-Kildeyev explains. Hence, the company should continue to operate if further lockdowns are to be imposed.
In any case, Devlet-Kildeyev says Don Agro has further tightened its own Covid-19 measures. Staff working at the company&rsquo s headquarters are now prohibited from visiting the farms. Meetings are only held through video calls. This is on top of existing measures already put in place, such as mask-wearing and temperature taking.
It helps that the tasks involved in agriculture work, thanks to technology, are siloed. For instance, instead of working the fields in groups, only one worker is required to operate a harvester to harvest the winter wheat or sow the seeds, explains Devlet-Kildeyev. &ldquo So, the risk of getting infected is limited,&rdquo he says.
However, the challenge for many agriculture companies is the weather. Don Agro cannot control the elements such as frosting which leads to crop damage and poorer than expected yield.
To mitigate the impact of unfavourable weather conditions, Devlet-Kildeyev says Don Agro follows a strict schedule in the agricultural cycle. For instance, the company fertilises the winter wheat with saltpetre &mdash a type of fertiliser &mdash in February when there is still snow and ice in the fields. When the weather subsequently gets warmer in a few days, the fertiliser melts and penetrates the soil.
But if the company fertilises the winter wheat late, the soil will be too wet to do so as the ice has melted. Conversely, if the company fertilises the winter wheat early, the saltpetre will be wasted as it will not penetrate the soil. &ldquo It&rsquo s a formula attached to the schedule, and you have to maintain it very strictly,&rdquo he says.
Don Agro&rsquo s dairy business also helps to offset the fluctuation in its crop business. In FY2020, the livestock segment recorded y-o-y revenue growth of 1.9% to $9.8 million. This came on the back of an increase in milk yield per cow per day to 20.1 litres from 19.5 litres.
Don Agro expects further increases in milk yield and total production volume as constant improvements are undertaken to improve the production processes and the genetics of its dairy herd.
Expanding landbank, going organic, using automation
Meanwhile, Don Agro has taken steps for growth ahead by acquiring more arable land. In 4Q2020, the company acquired a 99.99% stake in agricultural company Volgo-Agro for about $900,000. The latter operates a landbank of about 24,809.4 acres in an area that provides favourable levels of precipitation and quality of soil highly suited for winter wheat production. Volgo-Agro also owns important assets including a grain cleaning machine and grain storage facilities of 10,000 tonnes.
The result of the acquisition has expanded the company&rsquo s total arable landbank by 18.9% to 156,269.4 acres (632.4 sq km). More importantly, Volgo-Agro&rsquo s land bank is situated north of the Caspian region and in the basin of the Volga River, which is near important trading routes. The region also borders Kazakhstan, which is a key gateway to Central Asia. The acquisition has enabled Don Agro to position itself favourably to ship crops to these untapped markets.
According to Devlet-Kildeyev, the company is not done acquiring landbank. So, how much more is the company keen to add? &ldquo There is no limit, really. We&rsquo re looking at a certain number of opportunities, ranging in size from 150 sq km to 500 sq km,&rdquo he says.
The main obstacle, however, is location. Ideally, Devlet-Kildeyev says the land bank should be close to the company&rsquo s existing land bank. It also needs to be near transport infrastructure. &ldquo Because, you know, if landbanks are very far away, then you have management problems,&rdquo he explains.
The yield quality of the landbank is another important factor. Devlet-Kildeyev says the company would not acquire landbank in the Urals region because the soil there is &ldquo not good&rdquo . Moreover, the climate conditions there are less than favourable. &ldquo So, it&rsquo s a combination of factors,&rdquo he says.
Devlet-Kildeyev says Don Agro should have no problem financing any potential acquisitions ahead. As at Dec 31, 2020, the company has borrowings amounting to $12.4 million, which translates to a debt-to-equity ratio of 28.4%. It also has cash and cash equivalents of about $10 million as at Dec 31, 2020.
Besides accumulating more land, the company is channelling its efforts to growing crops seen to enjoy better prospects. Specifically, Don Agro is venturing into the organic market. The company has allocated 27.2 acres of land to grow organic winter wheat. Devlet-Kildeyev says the company is keen to do so because the organic market is worth $100 billion and growing.
He points out that many people are now getting more health-conscious and want to have more healthy eating options. Citing himself as an example, Devlet-Kildeyev notes that he would have rejected organic meals a few years ago. But not any longer.
&ldquo We are what we eat. If we consume food that has higher levels of certain minerals, certain chemicals, maybe traces of pesticides, then, you know, our body is affected,&rdquo he says. &ldquo [But] we all want to live longer, happier lives and [thus] eating organic food is [one way to do so].&rdquo
The company has also taken steps to increase its efficiency in crop harvesting. The company announced on June 15 that it will acquire two units of an autonomous driving system for agricultural machinery called Cognitive Agro Pilot. Each unit costs $14,400.
Although harvesters today utilise computerised technologies to enable the automation of certain processes, the harvesting process still requires the significant involvement of human operators. With the adoption of Cognitive Agro Pilot, the company&rsquo s crop harvester operators will be able to focus solely on managing machinery parameters as the autonomous driving system steers the crop harvester.
As a result, the total daily output is projected to increase as operators will be able to clock in more working hours each day due to the shift in focus to less tedious tasks. &ldquo So, there are a lot of benefits to that,&rdquo says Devlet-Kildeyev.
https://www.theedgesingapore.com/issues/company-news/don-agro-recent-lows-bulks-more-land-eyes-lucrative-market-organic-crops
Company in the news
Don Agro, off recent lows, bulks up with more land eyes lucrative market of organic crops
Not too long after Don Agro International became the first Russian company to be listed on the Singapore Exchange, about 20 of its staff fell ill from Covid-19.
One of them was CEO Marat Devlet-Kildeyev, whose lungs were 70% damaged. As a result, he was fighting for his life in the hospital&rsquo s Covid-19 ward for 25 days.
Devlet-Kildeyev&rsquo s infection coincided with a drop in the company&rsquo s share price from its then all-time-high of 36 cents on May 28 last year. It went as low as 25 cents, wiping out much of the gains made by the winter wheat and dairy producer, which made its debut at 25 cents on Feb 14, 2020. The company&rsquo s IPO price was 22 cents.
Fortunately, Don Agro&rsquo s operations were not impacted significantly by Covid-19. The infected staff were mostly those who were stationed at the company&rsquo s headquarters. Staff working in the production of crops and dairy were able to continue harvesting wheat and milking the cows since they tested negative.
However, the stock fell further to an all-time low of 20 cents on Aug 20, 2020. This came after Don Agro posted a mixed set of results for 1HFY2020 ended June 30. The company&rsquo s revenue had tumbled 60.6% y-o-y to $6.9 million on the back of lower sales of crop production. Earnings were up 3.3% y-o-y to $4.4 million, thanks largely to a 70% gain from change in fair value of biological assets and agricultural produce to $5.5 million.
As for Devlet-Kildeyev, he managed to pull through and is now in good shape after undergoing a two-week rehabilitation programme in Moscow. &ldquo I was close to leaving this world [last year]. But, you know, I survived. And recently, I got vaccinated,&rdquo Devlet-Kildeyev tells The Edge Singapore in an interview.
Shares of Don Agro subsequently rebounded strongly to end 2020 at 36 cents, before hitting a new all-time high of 40 cents on June 1. The stock has since come off a little to close at 39 cents or seven times earnings on July 16, but it is up 77.3% from its IPO price.
Despite the recovery of Devlet-Kildeyev and his staff, Covid-19 continues to be a risk for the company. The number of new daily infections in Russia has risen sharply since early June to more than 25,000 cases this month. Record Covid-19 deaths were registered five days consecutively to 697 on July 3.
Don Agro&rsquo s financial performance continues to be mixed. For FY2020, the company&rsquo s revenue declined 12.5% y-o-y to $31 million on the back of lower sales of crops. This was the result of lower yield due to bad weather conditions. Earnings were up 66.5% y-o-y to $8.7 million, thanks to a 41.5% jump in gain from change in fair value of biological assets and agricultural produce to $9.2 million.
So, how will the company&rsquo s financial performance and share price fare ahead?
Mitigating risks
Unlike many other companies, Don Agro is unlikely to be affected by lockdowns. Key industries such as agriculture are deemed to be &ldquo strategic&rdquo to the &ldquo well-being&rdquo of the country, Devlet-Kildeyev explains. Hence, the company should continue to operate if further lockdowns are to be imposed.
In any case, Devlet-Kildeyev says Don Agro has further tightened its own Covid-19 measures. Staff working at the company&rsquo s headquarters are now prohibited from visiting the farms. Meetings are only held through video calls. This is on top of existing measures already put in place, such as mask-wearing and temperature taking.
It helps that the tasks involved in agriculture work, thanks to technology, are siloed. For instance, instead of working the fields in groups, only one worker is required to operate a harvester to harvest the winter wheat or sow the seeds, explains Devlet-Kildeyev. &ldquo So, the risk of getting infected is limited,&rdquo he says.
However, the challenge for many agriculture companies is the weather. Don Agro cannot control the elements such as frosting which leads to crop damage and poorer than expected yield.
To mitigate the impact of unfavourable weather conditions, Devlet-Kildeyev says Don Agro follows a strict schedule in the agricultural cycle. For instance, the company fertilises the winter wheat with saltpetre &mdash a type of fertiliser &mdash in February when there is still snow and ice in the fields. When the weather subsequently gets warmer in a few days, the fertiliser melts and penetrates the soil.
But if the company fertilises the winter wheat late, the soil will be too wet to do so as the ice has melted. Conversely, if the company fertilises the winter wheat early, the saltpetre will be wasted as it will not penetrate the soil. &ldquo It&rsquo s a formula attached to the schedule, and you have to maintain it very strictly,&rdquo he says.
Don Agro&rsquo s dairy business also helps to offset the fluctuation in its crop business. In FY2020, the livestock segment recorded y-o-y revenue growth of 1.9% to $9.8 million. This came on the back of an increase in milk yield per cow per day to 20.1 litres from 19.5 litres.
Don Agro expects further increases in milk yield and total production volume as constant improvements are undertaken to improve the production processes and the genetics of its dairy herd.
Expanding landbank, going organic, using automation
Meanwhile, Don Agro has taken steps for growth ahead by acquiring more arable land. In 4Q2020, the company acquired a 99.99% stake in agricultural company Volgo-Agro for about $900,000. The latter operates a landbank of about 24,809.4 acres in an area that provides favourable levels of precipitation and quality of soil highly suited for winter wheat production. Volgo-Agro also owns important assets including a grain cleaning machine and grain storage facilities of 10,000 tonnes.
The result of the acquisition has expanded the company&rsquo s total arable landbank by 18.9% to 156,269.4 acres (632.4 sq km). More importantly, Volgo-Agro&rsquo s land bank is situated north of the Caspian region and in the basin of the Volga River, which is near important trading routes. The region also borders Kazakhstan, which is a key gateway to Central Asia. The acquisition has enabled Don Agro to position itself favourably to ship crops to these untapped markets.
According to Devlet-Kildeyev, the company is not done acquiring landbank. So, how much more is the company keen to add? &ldquo There is no limit, really. We&rsquo re looking at a certain number of opportunities, ranging in size from 150 sq km to 500 sq km,&rdquo he says.
The main obstacle, however, is location. Ideally, Devlet-Kildeyev says the land bank should be close to the company&rsquo s existing land bank. It also needs to be near transport infrastructure. &ldquo Because, you know, if landbanks are very far away, then you have management problems,&rdquo he explains.
The yield quality of the landbank is another important factor. Devlet-Kildeyev says the company would not acquire landbank in the Urals region because the soil there is &ldquo not good&rdquo . Moreover, the climate conditions there are less than favourable. &ldquo So, it&rsquo s a combination of factors,&rdquo he says.
Devlet-Kildeyev says Don Agro should have no problem financing any potential acquisitions ahead. As at Dec 31, 2020, the company has borrowings amounting to $12.4 million, which translates to a debt-to-equity ratio of 28.4%. It also has cash and cash equivalents of about $10 million as at Dec 31, 2020.
Besides accumulating more land, the company is channelling its efforts to growing crops seen to enjoy better prospects. Specifically, Don Agro is venturing into the organic market. The company has allocated 27.2 acres of land to grow organic winter wheat. Devlet-Kildeyev says the company is keen to do so because the organic market is worth $100 billion and growing.
He points out that many people are now getting more health-conscious and want to have more healthy eating options. Citing himself as an example, Devlet-Kildeyev notes that he would have rejected organic meals a few years ago. But not any longer.
&ldquo We are what we eat. If we consume food that has higher levels of certain minerals, certain chemicals, maybe traces of pesticides, then, you know, our body is affected,&rdquo he says. &ldquo [But] we all want to live longer, happier lives and [thus] eating organic food is [one way to do so].&rdquo
The company has also taken steps to increase its efficiency in crop harvesting. The company announced on June 15 that it will acquire two units of an autonomous driving system for agricultural machinery called Cognitive Agro Pilot. Each unit costs $14,400.
Although harvesters today utilise computerised technologies to enable the automation of certain processes, the harvesting process still requires the significant involvement of human operators. With the adoption of Cognitive Agro Pilot, the company&rsquo s crop harvester operators will be able to focus solely on managing machinery parameters as the autonomous driving system steers the crop harvester.
As a result, the total daily output is projected to increase as operators will be able to clock in more working hours each day due to the shift in focus to less tedious tasks. &ldquo So, there are a lot of benefits to that,&rdquo says Devlet-Kildeyev.
More than one year on, share price performance of Catalist-listed Don Agro International Limited (SGX:GRQ) has outperformed many of its peers who listed in 2020 - the counter has climbed approximately 62.5% from its closing price on the day of its IPO of S$0.24 to stand at S$0.39 today. At a current trailing P/E of 6x today, Don Agro could be a lucrative agricultural play for any investor looking to increase their exposure to the Russian agricultural sector. What do you think?
SGX recently published a piece on Don Agro via their 10-in-10 series, could be worth taking a look: https://api2.sgx.com/sites/default/files/market-dialogues/migration/10%20in%2010%20with%20Don%20Agro%20International%20-%20Feeding%20a%20Greener%20World%20%2811May2021%29.pdf
10 in 10 &ndash Don Agro (SGX Code: GRQ)
10 Questions in 10 Minutes with SGX-listed companies
Company Overview
Don Agro is one of the largest agricultural companies in the Rostov region in Russia principally engaged in the cultivation of agricultural crops and production of raw milk. The Group has a controlled land bank of approximately 63,240 hectares, of which approximately 51,207 hectares are arable land. Don Agro owns approximately 16,600 hectares of the controlled land bank.
Describe Don Agro&rsquo s recent financial performance
What is the rationale for the recent acquisition of Volgo-Agro? How was the acquisition funded and how will it add to the firm&rsquo s growth plans?
What is the Group&rsquo s dividend policy (if any)?
What are Don Agro&rsquo s competitive strengths in the agricultural industry?
What are the key drivers of Don Agro&rsquo s growth over the medium to longer term?
Which are your key geographic markets? Do you have active plans in place to expand your geographical reach?
How has the pandemic affected Don Agro&rsquo s facilities and productions? How did you deal with it?
What are some of the key consumer trends you foresee and how will they hinder/drive the Group&rsquo s growth prospects?
Globally, governments have been committing to green economy/net zero plans. What are some ways Don Agro is working towards supporting a sustainable economy?
What is Don Agro&rsquo s value proposition to its shareholders and potential investors?
SGX recently published a piece on Don Agro via their 10-in-10 series, could be worth taking a look: https://api2.sgx.com/sites/default/files/market-dialogues/migration/10%20in%2010%20with%20Don%20Agro%20International%20-%20Feeding%20a%20Greener%20World%20%2811May2021%29.pdf
10 in 10 &ndash Don Agro (SGX Code: GRQ)
10 Questions in 10 Minutes with SGX-listed companies
Company Overview
Don Agro is one of the largest agricultural companies in the Rostov region in Russia principally engaged in the cultivation of agricultural crops and production of raw milk. The Group has a controlled land bank of approximately 63,240 hectares, of which approximately 51,207 hectares are arable land. Don Agro owns approximately 16,600 hectares of the controlled land bank.
Describe Don Agro&rsquo s recent financial performance
- Don Agro posted a 66.5% year-on-year (yoy) increase in net profit, to an all-time high of $8.7 million, for FY2020 (ended 31 December 2021) despite challenging operating conditions amid the COVID-19 pandemic.
- Revenue for FY2020 declined 12.5% yoy to S$31.0 million. This was mainly attributable to a relative decline in the sales of crops compared to FY2019, as a significant yield of sunflowers harvested in FY2018 was shifted for sale in FY2019 instead. Correspondingly, cost of sales decreased 23.3% yoy to S$25.6 million for FY2020.
- Notwithstanding the above, the Group has been a beneficiary of rising global prices of agricultural produce, with gross profit rising 70.3% yoy to S$14.6 million for FY2020. This was mainly driven by a 41.5% yoy increase in gain from change in fair value of biological assets and agricultural products to S$9.2 million for FY2020.
What is the rationale for the recent acquisition of Volgo-Agro? How was the acquisition funded and how will it add to the firm&rsquo s growth plans?
- Volgo-Agro is an agricultural company that operates a land bank of approximately 10,040 hectares in the Volgograd region of Russia, an area that provides favourable levels of precipitation and quality of soil that is highly suited for winter wheat production.
- In line with our IPO plans to expand our arable land bank, we now harness an enlarged land bank of approximately 63,240 hectares in total after the acquisition, representing an 18.9% growth rate. This new land capacity will accelerate growth for winter wheat production and allow us to expand our income stream by diversifying our range of offerings through crop rotation.
- The acquisition has also enabled us to gain important assets including a grain cleaning machine and existing storage facilities of 10,000 tonnes, allowing us to store more winter wheat for sale during peak pricing periods.
What is the Group&rsquo s dividend policy (if any)?
- While the Group does not currently have a fixed dividend policy, the Board of Directors intends to recommend and distribute regular dividends of up to 20.0% of net profit to reward shareholders for participating in the Group&rsquo s growth.
- Since our listing on the Catalist board of the SGX in February 2020, the Board declared a maiden dividend of 0.7 Singapore cents per share on 30 March 2020, representing a payout ratio of 20.0% for FY2019 (ended 31 December 2019).
- For FY2020, the Board declared a final dividend of 1.2 Singapore cents per share, representing a payout ratio of 20.0%. This demonstrates the Board&rsquo s commitment to reward shareholders for embarking on Don Agro&rsquo s growth journey.
What are Don Agro&rsquo s competitive strengths in the agricultural industry?
- The Group has competitive strengths in two areas &ndash our location and our people.
- Location - Our main land bank is located in the Rostov region, one of the most fertile regions in Russia with stable and predictable weather conditions, highly suitable for crop production. This region is approximately 220 km away from the Azov Sea and Don River international ports. This allows our customers, who are mainly traders and exporters, to save on transportation costs and, as a result, be able to offer higher prices for our crops. Our second operating division in the Volgograd region is also located close to key trading routes with the Middle East and Asia.
- People - Don Agro is headed by an experienced team of industry executives who have a clear long-term vision of the Group&rsquo s business objectives and growth plans. This is evident in our latest ventures which include branching out to produce organic produce as well as the acquisition of Volgo-Agro. The Board and management team are also supported by operational leaders who have extensive experience in the day-to-day operations of crop fields, dairy farms and all other aspects of the business. Success in crop and dairy farming may be attributed to experienced, structured and hands-on farm management practices to maximise yields and produce high quality crops and raw milk.
What are the key drivers of Don Agro&rsquo s growth over the medium to longer term?
- The Group&rsquo s business is dependent on the amount of arable land available. Through the acquisition of arable land banks and other agricultural companies, we have expanded our total land bank to approximately 63,240 hectares, of which 51,200 hectares are arable land. We are also looking to acquire land which is near to our current area of operations or closer to ports in the Rostov region for ease of transporting our produce.
- To ensure alignment with consumer trends, we will focus on products that are in high demand and more commercially viable such as wheat, sunflower and corn. The sale of wheat in the Russian domestic market has been strong due to the increased cost of imported agricultural produce as a result of the depreciation of the Russian Ruble. There is also a growing preference for wheat in Southeast Asia which has become the world&rsquo s top wheat importing region.
Which are your key geographic markets? Do you have active plans in place to expand your geographical reach?
- We currently serve the local market in Russia as well as customers in the Middle East and Southeast Asia. We have in place plans to expand both domestically and internationally.
- Domestically, we intend to expand into high growth areas including other districts within the Rostov and Krasnodar regions.
- Internationally, we are constantly looking for new trade opportunities in Southeast Asia and the Middle East. We will be executing these expansion plans through mergers and acquisitions, joint ventures and strategic alliances with domestic and foreign partners.
How has the pandemic affected Don Agro&rsquo s facilities and productions? How did you deal with it?
- The Group&rsquo s business has been largely unaffected by the global pandemic as people continue to stock up on food supplies such as wheat, oil and other staples during periods of lockdown. Overall, the pandemic did not have a significant material impact on our business operations. Instead, we were able to record a 66.5% yoy increase in net profit to an all-time high in FY2020.
What are some of the key consumer trends you foresee and how will they hinder/drive the Group&rsquo s growth prospects?
- As consumers are becoming better informed and mindful about the ethical and environmental impact of their food choices, there is a shift towards sustainable consumption. These include opting for organic alternatives such as certified organic wheat products due to rising health concerns about the harmful effects caused by chemicals and pesticides in non-organic produce. According to Meticulous Research® , global organic food market has been forecasted to reach S$272.2 billion by 2027 or expand at a CAGR of approximately 12.2%.
- In line with these trends, we recently launched a pilot project to cultivate organic wheat. We believe this is a step in the right direction as it will allow us to expand our suite of offerings, capture new market segments and ultimately generate new revenue streams.
- With expected higher margin and reduced used of fertilisers and pesticides, the sale of organic produce could improve our earnings resiliency and profitability over the longer term.
Globally, governments have been committing to green economy/net zero plans. What are some ways Don Agro is working towards supporting a sustainable economy?
- The sustainability of our Group&rsquo s operations is one of our key corporate priorities. As companies worldwide embark on the search for alternatives that are cleaner and greener, we have a key role to play in ensuring that our responsibilities to our shared environment are met.
- To lessen our environmental impact, we strive to improve efficiency, productivity, and crop yield by periodically replacing our equipment and machinery (e.g. seeders, tractors and harvesters).
- As an agricultural business, we are aware of how conventional farming practices may have adverse impact on the environment. To reduce this impact, we have been progressively expanding our adoption of &ldquo No-Till&rdquo farming practices since 2014. &ldquo No-Till&rdquo farming benefits the environment as it prevents the erosion of soil and restores its natural structure while requiring less use of machines and fuel overall. Today, &ldquo No-Till&rdquo fields make up approximately 7,418 hectares of our arable land bank and we intend to grow this figure in the years ahead to ensure our operations remain environmentally sustainable.
- Our recent venture into organic wheat cultivation further demonstrates our commitment for sustainable farming practices. For our new organic wheat fields, only naturally occurring biological products will be utilised for the crop cultivation process in place of pesticides or herbicides. We expect these fields to be completely free of mineral fertilisers and pesticides by September 2021.
What is Don Agro&rsquo s value proposition to its shareholders and potential investors?
- As the first Russian company to be listed on SGX, we believe that investors are presented with a unique opportunity to invest in the Russian agricultural sector which is of rising importance and has seen tremendous growth in recent years. In 2020, Russia was the world&rsquo s largest exporter of wheat, the second-largest producer of sunflower seeds and the fourth-largest producer of milk. Crucially, the Russian government views the agriculture sector as a strategic industry to further the country&rsquo s long-term growth and has introduced strategic and supportive government policies.
- By choosing to focus on wheat, sunflower and corn which are products that have strong and growing demand, the Group is well-positioned to capture the burgeoning growth of the market. According to a report by the USDA in 2019, demand for wheat has been experiencing major growth. In particular, Southeast Asia has become the world&rsquo s top wheat importing region as a result of a shift in consumption habits. Insufficient local wheat production in the region (making up less than 1% of demand requirements) and a hike in consumption have driven import demand for wheat. Going forward, we are optimistic of our long-term growth trajectory as we continue to focus on such products that are in high demand.