1 December 2008
LatAm Paper & Forest
Revisiting the Chilean players;
price target changes
Josh Milberg, CFA
Research Analyst
(55) 11 2113 5971
josh.milberg@db.com
Lowering price targets on Copec and CMPC
We reiterate our Hold ratings on the two stocks while lowering our price targets to
CLP5,150 (from CLP 7,600) for Copec and to CLP9,900 (from CLP19,000) for
CMPC. These cuts respond to a significant weakening in their earnings outlook
resulting from the downturn in the global forest products market. While the
companies are well managed and have significant competitive strengths, we
believe that these attributes are priced in at current levels. Of the two names, we
currently prefer Copec on valuation and its higher liquidity
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Companies featured
COPEC (COP.SN),CLP5,009.50 Hold
2007A 2008E 2009E
EPS (USD) 0.78 0.62 0.41
P/E (x) 19.2 12.1 18.4
EV/EBITDA (x) 12.5 7.5 11.1
CMPC (CAR.SN),CLP10,700.00 Hold
2007A 2008E 2009E
EPS (USD) 2.32 1.43 0.74
P/E (x) 15.4 11.3 21.9
EV/EBITDA (x) 10.2 5.9 8.1
Global Markets Research Company
Updating estimates
We now have EBITDA for Copec and CMPC declining 38% and 26%, respectively,
in 2009, in dollar terms. This reflects reduced price and volume assumptions
across most wood business segments (with lower capacity utilization and Copec’s
recent sawmill plant closures). We have also updated our assumptions for
Copec’s fuel business, which is adversely affected by lower oil prices (down 55%
since 3Q08) as well as reduced demand resulting from increased hydroelectric
energy supply and the anticipated start-up of Chile’s liquefied natural gas (LNG)
terminal at Quintero next year.
Difficult outlook for global pulp market
Pulp represents 47% of EBITDA for Copec and 58% for CMPC. While we recently
saw a resumption of pulp purchases by Chinese buyers, the 12-month outlook for
the sector remains tough on slowing Chinese industrial activity, weakening North
American and European demand, and high producer stocks. Pulp prices are off
some $200 from their summer peak and appear unlikely to rebound any time soon.
The timber businesses of both companies should also continue to be pressured by
the U.S. housing crisis.
DCF-based price targets and risk
We value Copec and CMPC using a DCF approach that considers dollardenominated
cash flows for 2008-17. We derived WACCs of 10.35% for both
companies based on a risk free rate of 5.5%, a 0.9 beta and a sovereign spread of
170. Multiples comparisons also support a relatively cautious stance on the
shares. We have 2009E P/E of 18.4 for Copec and 21.9 for CMPC. Upside and
downside risks to the shares relate to global economic uncertainty, the U.S.
housing crisis, pulp prices, Chinese demand, oil prices, competition and the
currency outlook. Copec and CMPC have net debt to LTM EBITDA ratios of 1.2
and 1.5, respectively.
Figure 1: New price targets
Copec CMPC
Rating Hold Hold
Current price 5,010 10,700
Prior price target 7,600 19,000
New price target 5,150 9,900
Upside potential 3% -7%
Source: Deutsche Bank

Table of Contents
Investment summary ........................................................................ 3
Updated view...........................................................................................................................3
Valuation ............................................................................................ 7
DCF Valuations.........................................................................................................................7
Pulp market update........................................................................... 9
COPEC overview.............................................................................. 14
Updating numbers ..................................................................................................................14
Arauco....................................................................................................................................15
COPEC fuels business ............................................................................................................17
Third quarter results review ....................................................................................................19
COPEC capital expenditure and investment outlook...............................................................20
CMPC Overview............................................................................... 25
Updating numbers ..................................................................................................................25
CMPC pulp division.................................................................................................................27
Tissue segment.......................................................................................................................27
Forestry..................................................................................................................................27
Paper and paper products.......................................................................................................28
CMPC’s energy situation ........................................................................................................29
Third quarter results review ....................................................................................................29
CMPC capital expenditure outlook..........................................................................................30
Risks.................................................................................................. 33
Copec.....................................................................................................................................33
CMPC.....................................................................................................................................33
Ownership structure ....................................................................... 34