SPRING 2015 SIM COMPANY PRESENTATION
MATERIAL SECTOR
04/21/2015
QIUJUN CAI
JIAXIN LI
ALBERT LIONG
ZEYU LIU
AGENDA
 Sector Overview
 Dow Chemical Company
 Teck Resources Ltd.
 Ecolab, Inc.
 Reccomendation
OVERVIEW
Materials
3.17%
S&P 500 Weight
Materials
2.58%
SIM Weight
Stock Recommendations
Company Name
Current Weights
(basis points)
Recommended Weights
(basis points)
Dow Chemical
0
80 (Buy)
Teck Resources
145
75 (Sell)
Ecolab
114
114
Dupont
0
0
Total
259
269
Dow Chemical Company- Buy
 NYSE: Dow
 Current Price : $50.09 (April 20, 2015)
 Target Price : $52.2 (4.2% upside potential)
 52-Week Range : $41.45-$54.97
 P/E : 15.7
 P/B : 3.03
 Beta : 1.68
 EPS : 2.87
 Market Capitalization : $56.26 Billion
 Shares Outstanding : 1.16 Billion in CAD
Recommendation: Buy
Dow Chemical Company
 Headquarter in Midland, Michigan, United States
 Founded in 1897 by Herbert H. Dow
 Second-largest chemical manufacturer by revenue
 Third-largest chemical company by market capitalization
 S&P 500 component in Materials Sector
 More than $70 billion assets and $22 billion equity
 Strong Year 2014: $58.2 billion net sales, 2% up
 More than 6000 products manufactured at 201 sites in 36 countries
Business Segment
2014 Fiscal Year Sales by Business Segment
Infrastructure
Solutions
14%
Consumer Solutions
8%
Agricultural
Sciences
13%
Performance
Materials &
Chemicals
26%
Performance
Plastics- New
39%
Trilling 12-Month Performance vs. S&P 500 Index
Source: Fidelity
Economic Analysis
Start to decrease from July
$95 to $52
Source: NASDAQ
Economic Analysis
Source: FRED
Dow Chemical Company（Dow）
Analyst: Qiujun Cai
Date: 04/20/2015
Terminal Discount Rate =
Terminal FCF Growth =
Year
2015E
55,671
Revenue
% Growth
56,057
0.7%
Operating Income
2,305
Operating Margin
4.1%
1,336
Interest and Other
Interest % of Sales
2.4%
1,420
Taxes
Tax Rate
39.0%
Net Income
3,412
% Growth
3,033
5.4%
2,169
3.9%
2,029
39.0%
4,255
24.7%
2,605
Add Depreciation/Amort
% of Sales
4.7%
895
Plus/(minus) Changes WC
% of Sales
1.6%
2,561
Subtract Cap Ex
Capex % of sales
4.6%
Free Cash Flow
4,352
% Growth
2,410
34,059
28,558
62,617
7.24%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
17.6
18.4
14.9
15.4
Shares Outstanding
1,200
$
$
50.09
52.18
4.2%
2017E
59,903
6.9%
4,019
6.7%
2,426
4.1%
2,514
39.0%
4,986
17.2%
2,875
4.7%
4.7%
(528)
(978)
-0.9%
2,747
4.8%
3,391
-22.1%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2016E
-1.6%
2,696
4.8%
4,188
23.5%
54%
46%
100%
2018E
61,700
3.0%
3,085
5.0%
2,468
4.0%
2,166
39.0%
3,387
-32.1%
2,900
4.7%
2,653
4.3%
2,962
4.8%
5,979
42.8%
2019E
63,551
3.0%
3,178
5.0%
2,542
4.0%
2,231
39.0%
3,489
3.0%
3,050
4.8%
2,733
4.3%
3,050
4.8%
6,222
4.1%
11.00%
2.0%
2020E
65,457
3.0%
3,273
5.0%
2,618
4.0%
2,298
39.0%
3,594
3.0%
3,142
4.8%
2,815
4.3%
3,142
4.8%
6,408
3.0%
2021E
66,766
2.0%
4,006
6.0%
2,671
4.0%
2,604
39.0%
4,073
13.3%
3,272
4.9%
2,871
4.3%
3,205
4.8%
7,010
9.4%
2022E
68,102
2023E
69,464
2.0%
4,086
2.0%
4,168
6.0%
2,724
6.0%
2,779
4.0%
2,656
4.0%
2,709
39.0%
4,154
39.0%
4,237
2.0%
3,337
2.0%
3,404
4.9%
2,588
4.9%
2,640
3.8%
3,269
3.8%
3,334
4.8%
6,810
4.8%
6,946
-2.9%
2.0%
2023E
70,853
2.0%
4,251
6.0%
2,834
4.0%
2,763
39.0%
4,322
2.0%
3,472
4.9%
2,692
3.8%
3,401
4.8%
7,085
2.0%
Terminal Value
Free Cash Yield
14.1
14.7
13.5
13.9
12.1
12.6
10.6
11.0
2024E
72,270
2.0%
4,336
6.0%
2,891
4.0%
2,819
39.0%
4,408
2.0%
3,614
5.0%
2,746
3.8%
3,614
5.0%
7,155
1.0%
81,087
8.82%
Terminal P/E
18.4
Terminal EV/EBITDA
11.9
Assumptions
 COGS/Sales: 83%
 Tax: 39%
 Discounted Rate: 11%
 Terminal Growth Rate: 2.0%
Sensitivity Analysis
Sensitivity Test $ 52.18
1.00%
1.25%
1.50%
1.75%
Growth Rate
2.00%
2.25%
2.50%
2.75%
3.00%
$
$
$
$
$
$
$
$
$
9.50%
57.32
58.66
60.08
61.60
63.22
64.94
66.80
68.78
70.93
10.00%
$ 53.95
$ 55.12
$ 56.36
$ 57.68
$ 59.08
$ 60.56
$ 62.15
$ 63.85
$ 65.67
10.50%
$ 50.93
$ 51.97
$ 53.05
$ 54.21
$ 55.42
$ 56.72
$ 58.09
$ 59.55
$ 61.11
Discount Rate
11.00% 11.50% 12.00%
$ 48.22 $ 45.77 $ 43.55
$ 49.14 $ 46.59 $ 44.27
$ 50.10 $ 47.44 $ 45.04
$ 51.11 $ 48.34 $ 45.83
$ 52.18 $ 49.28 $ 46.67
$ 53.31 $ 50.28 $ 47.55
$ 54.51 $ 51.33 $ 48.48
$ 55.78 $ 52.44 $ 49.46
$ 57.13 $ 53.61 $ 50.49
12.50%
$ 41.52
$ 42.17
$ 42.85
$ 43.56
$ 44.31
$ 45.10
$ 45.92
$ 46.79
$ 47.70
13.00%
$ 39.66
$ 40.25
$ 40.86
$ 41.50
$ 42.17
$ 42.87
$ 43.61
$ 44.38
$ 45.18
13.50%
$ 37.95
$ 38.48
$ 39.03
$ 39.61
$ 40.21
$ 40.84
$ 41.50
$ 42.19
$ 42.91
Relative Valuation
Name
Average
DOW CHEMICAL CO
Market
Cap
27.67B
55.48B
19.62
15.69
Dividend
Yld
1.93%
3.49%
P/FCF
(TTM)
32.63
18.23
EV/T12M
EBITDA
11.4
9.19
Price/Sales
Ratio
1.49
0.97
P/Book
(Mst Rct)
5.36
3.03
P/E ratio
DU PONT (E.I.) DE NEMOU
64.46B
16.7
2.64%
39.97
12.08
1.88
4.92
BASF SE
93.82B
16.51
3.02%
38.62
9.04
1.14
3.08
EASTMAN CHEMICAL CO
10.20B
9.83
2.34%
13.92
10.92
1.07
2.9
CELANESE CORP-SERIES A
8.61B
10.49
1.81%
32.73
10.23
1.26
3
PPG INDUSTRIES INC
30.36B
23.68
1.20%
33.97
14.43
2
5.84
LYONDELLBASELL INDU-CL
42.48B
11.26
3.14%
9.04
6.96
1.01
5.22
HUNTSMAN CORP
FMC CORP
MONSANTO CO
5.29B
7.60B
55.40B
10.18
14.59
24.87
2.32%
1.16%
1.68%
34.69
51.03
29.31
9.09
13.6
14.33
0.45
1.88
3.88
2.97
4.96
7.34
Relative Valuation
Valuation
High
Low
Median
Current
Target
Multiple
Target
Metric
Target
Price
Weight
P/E
25.2902
11.0717
16.2891
15.7
19.62
2.87
56.31
25%
P/B
3.11
1.527
2.4189
3.03
2.8228
16.6
46.86
25%
P/S
1.8306
0.6907
1.4095
0.97
1.184
40.2
47.58
25%
P/EBITDA
9.5334
3.8929
7.0691
9.5239
9.263
5.3
49.39
25%
Implied Price Per Share
$50.72
Dow Chemical Company - Buy
Risks
 Volatile commodity markets and sensitive to business cycle and economic cycle
 Rely too much on consuming petrochemical feedstock (oil and natural gas)
 Environmental Regulation
Opportunities
 Expansions into emerging markets
 Increasing consumer spending
 Industry-leading R&D department
Teck Resources Limited - SELL
 Ticker : NYSE: TCK
 Current Price : $13.45 (April 1, 2015)
 Target Price : $13.26 (1.4% downside
potential)
 52-Week Range : $11.07-$24.55
 P/E : 22.88
 P/B : 0.54
 Beta : 2.62
 EPS : 0.5
 Market Capitalization : $7.88 Billion
 Diluted Shares Outstanding :
576.1Million in CAD
Recommendation: SELL
Teck Resources Limited
 Headquarter in Vancouver, Canada
 Founded in 1906
 Teck Owns or has interest in 13 mines in Canada, the United States,
Chile and Peru.
 Canada’s largest diversified resource company
 The world’s second largest exporter of seaborne steelmaking coal
 The world’s third largest producer of mined zinc
 Top 10 copper producer in the Americas
Business Segment
Source: Company 2014 Annual Report
Trilling 12-Month Performance vs. S&P 500 Index
Source: Fidelity
Economic Analysis
In 2014, gross profit
decreased 37% due to
declining price of
commodity price.
Average realized coal
price decreased 23%
Source: Argue
Economic Analysis
Average realized zinc
price increased 13%
Crude oil price falls
since mid 2014, earned
5 million in EBITA for
every US$1 per barrel
decrease.
Source: LME
Each CAD$0.01 change
in the exchange rate
influencing EBITA by
about $52 million on an
annualized basis
Sensitivity Analysis
Relative Valuation
Multiples Analysis
Teck Resources Limited - SELL
 Commodity price is volatile and will not increase a lot immediately in the future
 Oversupply in material sector and metals & mining industry
 China decreases imports of raw material in recent years
 Uncertain about future earnings of Teck.
Ecolab Inc - Hold
 NYSE: ECL
 Current Price : $116.15 (April 20, 2015)
 Target Price : $122.14 (5.2% upside potential)
 52-Week Range : $97.78-$118.46
 P/E : 29.31
 P/B : 4.8
 Beta : 0.79
 EPS : 3.93
 Market Capitalization : $34.73 Billion
 Shares Outstanding : 305.9 Million
Recommendation: Hold
Ecolab Inc
 Headquarter in St. Paul, Minnesota, United States
 Founded in 1923 by Merritt J. Osborn
 S&P 500 component in Materials Sector
 More than $19 billion assets and $7 billion equity
 Strong Year 2014: $14.2 billion net sales (8% increase) & $1.2 billion net
income (24% increase)
 47,000 associates and 25,000 sales representatives at 1.3 million
locations in more than 170 countries
 Bill Gates is the largest shareholder with 26.4 million shares or 11.4% of
the company through Cascade Investment LLC
Business Segment - ECL
Source: Ecolab Annual Report
ECOLAB VS S&P500
Source: Ecolab Annual Report
Ecolab Inc
Drivers:
• Diverse set of customers in various industries, markets, and
regions.
• US economic growth
Risks:
• Exposure to $USD
• Declining commodity prices
• Slowdown in emerging markets
Sensitivity Analysis
Relative Valuation
Name
Mkt Cap
(USD)
P/E
Dvd Yld
P/FCF
EV/TTM
EBITDA
Sales
Growth
EBITDA
Growth
Average
31.34B
29.62
2.64%
32.16
17.4
2.61%
3.53%
ECOLAB INC
34.36B
27.87
1.00%
32.49
14.43
7.75%
19.80%
CHURCH & DWIGHT
11.03B
27.81
1.47%
24.21
15.98
3.23%
2.76%
CLOROX COMPANY
14.31B
24.62
2.66%
23.14
13.80
-0.30%
0.86%
HENKEL AG & CO
(GERMANY)
47.84B
26.00
-
34.82
14.12
0.45%
9.36%
224.45B
20.31
3.05%
19.33
14.84
-1.39%
-4.55%
ESTEE LAUDER
COMPANIES
31.31B
27.43
1.01%
24.98
14.92
5.37%
12.91%
KIMBERLY-CLARK CORP
40.83B
19.86
3.03%
30.79
14.03
-1.92%
-14.08%
PROCTER & GAMBLE
Source: Bloomberg
Materials Recommendation
 Buy: Dow Chemical
 Price target implies a 4.2% upside potential
 Buy Dow Chemical Company to add a new holding of SIM portfolio to 0.8%
 Sell: Teck Resources
 Price target implies a 1.4% downside potential
 Sell Teck Resouces to decrease the holding of Teck from 1.45% to 0.75%
 Hold: Ecolab
 Price target implies a 5.2% upside potential