CSM (Buy): Biosuccinic acid firm Myriant files for an IPO
The facts: Yesterday, Myriant Corporation has filed for an IPO to be listed on NASDAQ.
Our analysis: Yesterday, Myriant announced it intends to raise USD 125m in an IPO on NASDAQ. Myriant is an industrial biotechnology company aiming to produce low-cost biochemicals that substitute for traditional petroleum-based chemicals.
Biosuccinic acid: Myriant's main proposition is biobased succinic acid, which is targeted to offer a substitute for the current fossil-based succinic acid market, the butanediol market, the adipic acid market and the phthalic anhydride market. End-market applications of these chemicals include pigments, polyurethanes, engineering plastics, plasticizers and many more. Importantly, Myriant claims to be cost competitive at an oil price of USD 45 per barrel, well below the current price of oil.
Myriant is currently building a 15,000 tons biosuccinic acid plant in the US, which is slated to start production in the first quarter of 2013. It has the intention to scale up production to 75,000 tons. The company is also analysing opening plants in Germany and Asia. Myriant says in the IPO prospectus that the volume commitments from customers make it confident that the capacity of its new plant will be fully utilized. In addition, the company is negotiating building a 100,000 tons in a JV with a Chinese company.
CSM has teamed up with BASF in succinic acid. Given the position of BASF as a supplier of chemical intermediates in all the markets Myriant targets, we believe CSM has an excellent partner to further advance its succinic acid proposition.
Lactic acid: Myriant has licensed its technology to produce D- lactic acid to CSM in 2006 and CSM has used this license on a commercial scale in its plant in Spain since 2008. This technology has enabled CSM to form a so-called stereocomplex PLA using L-PLA and D-PLA. License fees paid by CSM in the past few years have been between USD 250,000 to USD 400,000 per year.
At the recent investor day, CSM highlighted the license relationship with Myriant. The company said scaling up the production and the manufacturing knowledge are proprietary know-how and CSM expects to have a lead time of at least 2-3 years over competition, but probably longer. The company showed for example that its PLA yield is about 25% higher compared to the industry average.
Myriant states in the IPO prospectus that it is developing a second generation process using non-food cellulosic biomass to produce the D- lactic acid. When completed, it has no obligation to license this technology to CSM. CSM expects to produce lactic acid from non-food substrates by 2015.
Conclusion & Action: Myriant's IPO prospectus confirms the succinic acid market is opening up, revealing a very cost-efficient biobased chemical intermediate alternative as well as substantial interest from the chemical industry. The potential development of the market also implies demand for lactic acid to be used in the succinic acid market will increase substantially in the years ahead. We rate CSM shares Buy with a target price of EUR 30.