P&P Initiation 2016

Pulp & Paper | Brasil Plural Equity Research |
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October 21st, 2016
Sowing the Seeds of Value
Initiating Coverage on Suzano,
Klabin and Fibria
Bernardo Carneiro, CFA
Guilherme Mendes
bernardo.carneiro@brailplural.com
+55 11 3206 8242
guilherme.mendes@brasilplural.com
+55 11 3206 8266

Summary
Investment Thesis 2
The Global Pulp Market 4
The Paper Market Snapshot 7
Pulp & Paper Stocks
Suzano 9
Klabin 17
Fibria 25
Appendix
Macroeconomic Assumptions 34
Global Trading Comps 35
Investment Methodology 36
Content
1

We are initiating coverage on the Brazilian pulp and paper industry at a moment when stocks are beaten down, and we adopt a contrarian philosophy. Brazilian players enjoy
enduring competitive advantages, professional management and value-added expansion projects. The negative effects of falling pulp prices, the stronger BRL relative to the
USD and downward consensus revisions are creating a great entry point for investors – with the exception of Fibria. We use a bottom-up investment methodology (our “Five
Principles Approach”) and the margin of safety concept1 , leading us to be very selective in stock picking. We determined our ratings through a combination of scores in each
investment principle and three valuation tools: 2018E FCF yields (which seem normalized after large expansion budgets in 2016-2017), the implied IRR of the stocks and DCF-
based target prices.
Suzano is our top pick in the pulp and paper sector for the highest implied IRR, consistent cash generation, compelling multiples, diversified revenues and a strong
balance sheet. The stock seems out of favor – consensus estimates are falling – which provides a great entry point. According to our estimates, the stock is trading at a 2018E
FCF yield of 11%, supporting our recommendation. In our view, Suzano’s integrated model, brand reputation, professional management and ongoing cost reduction initiatives
should help to offset volatility in pulp prices and the FX rate, supporting stable free cash flows over the next five years. After a period of expansion, the company improved its
balance sheet – leverage is now at 2.4x ND/EBITDA, the strongest balance sheet in the sector.
Klabin operates the best and safest business model in the sector, and obtained two “strong” scores in our investment methodology (see page 17). The company has a strong
business profile and we highlight its solid competitive position, the foundation of its goodwill and its brand recognition. The ramp-up of the Puma unit and the conclusion of
investments should allow for rapid deleveraging (4.5x net debt/EBITDA in 16E and 3.0x in 17E), strong FCF and rising ROIC in the years that follow. The stock is currently trading at 11%
FCF yield 2018E, which is inexpensive. Our valuation model resulted in a R$21 TP and a real IRR of 9% that is above inflation-adjusted bonds, the main reason for our Overweight
rating.
Investment Thesis
Suzano Is Our Top Pick, Followed by Klabin
Source: Brasil Plural Research
Note: 1. As famously discussed by Seth Klarman, Baupost Group’s chairman in “Margin of Safety: Risk-averse
Value Investing Strategies for the Thoughtful Investor” , Harper Business, 1991 2
Coverage Summary
Ticker Rating Price TP Upside Real IRR FCF Yield 18E
Suzano SUZB5 OW 10.1 15.0 49% 12% 11%
Klabin KLBN11 OW 16.1 21.0 30% 9% 11%
Fibria FIBR3 EW 22.7 24.0 6% 5% 7%

Fibria has average scores across our Five Principles and we think the stock should be range-bound in the near term, as earnings and cash flows should take some time to
rebound – it is too early for a bullish stance. Moreover, there is room for additional consensus earnings downgrades in view of the higher debt ratios during 2017 and
negative forces from abroad, i.e, the appreciating BRL and lower pulp prices. In fact, Fibria has the greatest elasticity to BRL variation and pulp prices among the sector – for
every R$0.10 variation in the BRL impacts 2017E EBITDA by 6.7%, while a US$30/t change in pulp prices moves it by 10%. The current expansion phase is also adversely
affecting the company’s financial ratios and balance sheet – we expect net debt-to-EBITDA to rise and exceed 5.0x in 2017. The stock trades at only 7% FCF yield projected for
2018, when capex should start to normalize, which is below the risk-free rate in the futures market. We think that Fibria’s stock will become out of favor sometime during
2017. We come up with an Equal Weight rating, R$24 target price and 5% implied IRR in real terms, which does not seem a sufficient margin of safety when considering
risk-free inflation-linked notes in Brazil, unpredictable earnings growth, low cash-adjusted ROIC, volatile cash flows and an average business profile.
We developed a proprietary and unique investment methodology, combining concepts espoused by Warren Buffet, Pat Dorsey, John Templeton, Philip Fisher and James
Montier, among other legends of stock investing, and tried to summarize our investment thesis into Five Principles. For further details on our methodology, please refer to
page 36.
Investment Thesis
Not Enough Margin of Safety for Fibria
* Business (earnings visibility, low volatility in business, competitive advantages, and corporate governance); Financial (CROIC, solid free cash flows, and dividends/share buybacks); Growth (insulation from
macroeconomics, structural demand/new markets, and consolidation opportunities); Trading (news flow, short-term results, and “out of favor” status); and Valuation (FCF multiples, implied IRR, DCF target price and
trading comps – which frame the margin of safety requirement). Each stock is scored differently on each principle. In general, we require a high margin of safety for an Overweight recommendation if the company has
weak scores in Business, Financial or Growth principles.
3
The Five Principles Approach*
Business Financial Growth Trading Valuation
Suzano Average Weak Average Out of Favor Overweight
Klabin Strong Average Strong Average Overweight
Fibria Average Weak Average Average Equal Weight

LatAm BEKP (Bleached Eucalyptus Kraft Pulp) producers enjoy solid growth drivers in the export market,
backed by a resilient demand for paper in Asia, the expansion of eucalyptus’ market share and a
shortage of inexpensive raw material (wood and scrap) in developed countries. In Asia, China’s
population continues to migrate from rural areas, accelerating the urbanization trend. In fact, recent data
from the World Bank shows that China’s urbanization rate was close to 60% in 2015, the same level as the
United States after WWII. The abandonment of a rural way of life and the search for improved living
standards should increase urbanization and boost overall consumption in China for many years to come,
driving demand for tissue and cardboard papers.
This trend, in part, is creating solid demand prospects for low cost, environmentally friendly pulp, led
by the eucalyptus: the revolution in the paper industry brought by the adoption of eucalyptus trees is still
in its early stages. The harvesting cycle is getting shorter, species are becoming weather resistant, and
pulp producers continue developing new cloned varieties to mitigate operating risks – particularly climate
change, pest resistance and an improvement in fiber quality, adding to the strength, resistance and
flexibility to the fibers.
The Global Pulp Market
Long Live the Eucalyptus
Source: Fibria reports; The World Bank; Brasil Plural Research
China’s tissue consumption should be a leading driver for
hardwood (Per Capita Consump. of Tissue - kg/capita/year)
4
Global Pulp Producers (k tons)
25
16 15
11
6 6 5
1
N. America West
Europe
Japan Oceania East
Europe
LatAm China Africa
0%
20%
40%
60%
80%
100%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
USA China World
Increasing Urbanization Trends in China (Urban Population - % of total)
Fibria
Arauco
APP
APRIL
Suzano
CMPC
UPM-Kymmene
Stora Enso
Georgia Pacific
Metsa Group
Ilim
IP (excl. Ilim)
Weyerhaeuser
Eldorado
Mercer
Domtar
Sodra
Klabin
Resolute Forest
Cenibra
Canfor
0 2000 4000 6000
Bleached Softwood
Kraft Pulp
Bleached Hardwood
Kraft Pulp
Unbleached Kraft Pulp
Mechanical Pulp
5,300

Long Live the Eucalyptus
The rising demand for low cost, highly productive and certified wood, as well as lesser demand for
scrap paper, encourages growing demand for BEKP by paper manufacturers. The trade of wood chips
should change dramatically in Asia, as China (issues with straw and bagasse), Japan (new power policy
supporting clean energy) and OKI (issues with Indonesia forestry) have increased the demand for wood.
The share of non-wood pulp in paper manufacturing – mainly bagasse and straw – should continue falling
as the increasing scale of production raises transportation issues and farms emphasize the biofuel
market. Japan’s government’s moves to provide a stimulus for bioenergy and reduce nuclear power
generation should fuel demand for wood in the region. Last but not least, APP’s OKI project, starting in
2017, should affect wood prices: according to WWF, nearly 55% of APP’s 796,000 ha of forest is on
peatlands, which are flammable and fragile.
There is also a general shortage of high quality scrap, particularly white scrap, as the consumption of
P&W paper slows globally. Moreover, the price competition with falling virgin fiber prices reduces the
incentive to invest in de-inking facilities, lowering the demand for scrap. Finally, faster growth in the
tissue segment relative to other papers fuels the demand for virgin fiber to the detriment of scrap.
Pulp producers have been moving beyond cost leadership in order to improve profits, and
management’s strategy now includes customer retention and innovation. For instance, they offer to
manage customer inventories, improve the performance of their machines by developing tailor made
fiber composites, save customers administrative expenses, deliver pulp right into the entry box of the
paper process, etc. Brazilian pulp producers are innovating and developing new applications, and we
highlight fluff pulp, biofuel and the nanocellulose. In Brazil, Klabin’s Puma new mill is the first one to
produce fluff pulp based on softwood, primarily destined to local tissue producers in a strategy to replace
imports. In our view, consolidation among hardwood producers is a logical strategy in order to discipline
the pulp market, allowing for better visibility in prices and improving supply-and-demand dynamics.
However, M&A in Brazil should only flourish when players collapse due to financial and controlling
shareholder issues, ultimately breaking emotional ties to these family-owned companies.
Main LatAm Pulp Producers
Source: Brasil Plural Research 5
Forestry
Facilities
Fibria
Suzano
Klabin
CMPC
Eldorado
Cenibra
Arauco

We anticipate hardwood prices to remain stable in 2017 relative to the end of 2016 (FOEX Europe at US$701
per ton), and to hold steady in 2018 despite oversupply risks, lackluster global growth and the entrance of
new capacity, primarily in Brazil and Indonesia. We expect a slow ramp-up on APP’s OKI facility, producing
one million tons in 2017 (an average HW project takes around nine months to fully ramp-up) and shut-downs
to sustain BEKP prices into 2018. In our view, the fears of oversupply in the short term are dissipating – in fact,
Suzano and Fibria’s recent price hikes (+US$20 per ton) confirm our opinion. In 2018, both OKI and Fibria’s
Horizonte 2 projects should add around 2.65mn tons of new capacity, while Eldorado plans to add 2.3mn tons
by 2020 from its Vanguarda 2.0 Project. Given the lack of visibility in projecting capacity shutdowns, we are
underestimating the closures by using the historical average of 400 ktons/year, i.e., the oversupply scenario in
2017/18 is conservative in view of the currently low price of hardwood.
The shut downs of pulp capacity, particularly in high cost regions, has been quite slow recently despite pulp
prices close to their cash costs. Many players have integrated facilities, transferring profits to the paper unit,
while others wait for higher pulp prices. According to Poyry Management Consulting, 3.8 million tons of pulp
capacity should shut down by 2021 due to i) high costs, ii) closure of ancillary assets, iii) delays and iv) slow
start-ups. For instance, straw-based pulp mills should lead the closures in Asia, as cash costs usually exceed
US$550/ton. Scandinavian and Canadian producers are also struggling in this low price environment.
A Word on Pulp Prices
Source: Fibria; Poyry; Risi; PPPC; Brasil Plural Research
20
30
40
50
60
70
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
HW Pulp Inventories (Days) Average
HW Inventories Above Historical Levels
We Expect Flat Prices on the Back of Continuous Capacity Increases
6
Valdivia
Hainan
Veracel
Nueva Aldea
Santa Fe II
Mucuri
Fray Bentos
Kerinci
Três Lagoas
Rizhao
Guangxi
Chenming Zhanjiang
Eldorado
Imperatriz
Montes del Plata
Oji Nantong
Guaíba II
Puma
Horizonte 2
0
100
200
300
400
500
600
700
800
900
1,000
0
500
1,000
1,500
2,000
2,500
3,000
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
BHKPPrice(US$/ton)
ProductionCpacity(th.tons/y)
Horizonte 2 + OKI
OKI
APP’s OKI project, as well as other Asian green fields,
are expensive, depend on third-party wood supply and
accordingly set a floor for global pulp prices (i.e.,
marginal cost producers).
000 tons 2016E 2017E 2018E 2019E 2020E
(+) Capacity Increase 1,460 1,740 2,650 1,000 1,300
(-) Closures (480) (315) (400) (400) (400)
(=) Net Expansion 980 1,425 2,250 600 900
(+) ∆ Demand 1,200 1,092 1,130 1,170 1,211
BHKP Demand 31,200 32,292 33,422 34,592 35,803
% Growth 3.5% 3.5% 3.5% 3.5%
Oversup./(shortfall) (220) 333 1,120 (570) (311)
We Anticipate an Oversupply of Short Fiber in 2017-18

The paper manufacturing business is less volatile and shows higher correlation to Brazilian GDP when compared to the pulp segment. As Brazil recovers from the economic
recession, we expect paper demand to rebound following increasing industrial activity in 2017, while the BRL appreciation – Brasil Plural economic team estimates BRL at R$3.0
by year-end – should likely increase competition with imports, primarily in the printing and writing segment.
The consumption of paper on a per capita basis in Brazil is very low when compared to developed countries, which supports our view that fast GDP growth and social
improvement should narrow this gap in the long run. However, some features of the Brazilian economy limits the demand for paper, particularly exports, as the shipping of
commodities do not require corrugated boxes and cardboard, unlike manufactured products.
While the decrease in pulp prices has helped non-integrated players, the hike in recycled paper prices provides a partially offset. Weak economic activity lowers the consumption
of paper, which translates into lower availability of scrap, pressuring prices upward. As a consequence, OCC (i.e, paper scrap in packaging) prices in Brazil increased 75% YTD,
reducing margins of non-integrated players in the cardboard and corrugated box segments. According to our channel checks, small producers of boxes are operating with
margins close to zero. Looking forward, we anticipate another increase in OCC prices, following seasonality effects.
In our view, there is room for consolidation in the corrugated box segment. The top three players (Klabin, Rigesa and Jira) have only ~30% of market share – the same as a decade
ago. In comparison, the top three US corrugated box producers hold more than 60% of the market vs. 30% two decades ago. Klabin is the most logical consolidator, but we do not
expect large M&A operations in the short-term given the company’s focus on the ramp-up of the pulp unit followed by adding a new cardboard machine.
The Paper Market
A Deeper Look Into the Paper Market
Source: ABPO, Risi; United Nations, Brasil Plural Research
Note: 1. Based on 2015 data
OCC Prices are Up 70% YoY, Hurting Non-Integrated PlayersPaper Consumption per Capita is Still Underpenetrated in Brazil
7
0
50
100
150
200
250
Germany
US
Japan
UK
France
China
Brazil
Argentina
PaperperCapitaConsumption(kgs)1
0
100
200
300
400
500
600
700
800
150
170
190
210
230
250
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Thousands
Corrugated Board Shipments (tons) - LHS OCC Price (R$/ton) - RHS

A high valued added product, combining
different layers of papers and mix of scrap
and virgin fiber. Klabin and Suzano lead
the market with an integrated – and more
profitable – model, followed by Papirus,
Ibema and MD Papeis. Klabin dominates
the liquid packaging boards market given
its first-mover advantage and plentiful
supply of low-cost softwood. There are
high barriers of entry and significant
switching costs in the segment, given
detailed specifications of quality and
weight. The increasing economic activity
in 2017 should encourage stronger
demand for packaging paper. Pricing
dynamics have changed since non-
integrated players suffer cost pressures
from recycled materials – historically
Klabin and Suzano used to lead price
hikes.
The Paper Market
Market Segmentation in Brazil
Source: Klabin; Papirus; International Paper; Brazil Central Bank; Ibá; SNIC; Brasil Plural Research
Cardboard Market Share
The uncoated segment is dominated by
Suzano and International Paper, and
demand is correlated to GDP growth. In
the coated market, Suzano is the largest
player and faces competition from foreign
players. Publicity materials push the
demand for coated paper, which tends to
have higher elasticity to GDP. In both
cases, international prices determine
domestic prices, and so the FX rate has a
greater influence over pricing in this
segment. There is also strong seasonality
in the second semester following
increased production of books and
notebooks related to the start of the
school year.
A very fragmented segment with room for
consolidation. Competition is regional as
the freight costs to ship longer distances
would make those products non-
competitive. Low barriers of entry
stimulate newcomers. We expect
shipments to increase in 2017 following
stronger industrial production.
Meanwhile, the surge in OCC prices (up
75% YTD) should continue to hurt non-
integrated players, possibly accelerating
the consolidation process as small players
are not profitable – we recall that OCC
represents approximately 65% of the costs
in the production of corrugated boxes for
non-integrated manufacturers.
The main customer of industrial bags in
Brazil is the civil construction sector –
sacks for cement represent more than
70% of total sales. According to SNIC
(Brazilian Union of Cement Industries),
cement sales dropped 13% YTD, which
forced producers to explore the export
market. Cement sales in Brazil have a
positive correlation of 1.5x GDP, and
accordingly industrial bags sales should
soar with the expected economic recovery
in 2017. The segment is very
concentrated, with Klabin holding more
than 50% market share.
Cardboard Printing & Writing Corrugated Box Industrial Bags
BRL vs. P&W Imports Corrugated Box Market Share Cement Sales vs. GDP Growth
8
Klabin,
30%
Suzano,
30%
Papirus,
13%
Ibema,
13%
MD
Papeis,
5%
Others,
9%
0%
10%
20%
30%
40%
2.0
2.5
3.0
3.5
4.0
4.5
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
BRL (LHS) % P&W Imports (RHS)
Klabin,
17% Rigesa (WRK),
8%
Orsa IP, 7%
Trombini, 6%
Irani, 6%Penha,
5%
Smurfit Kappa, 4%
Others,
47%
-10%
0%
10%
0
50
100
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Millions
Cement Sales LTM- Domestic Mkt (tons) - LHS
IBC-Br YoY % - RHS

Suzano
Our Top Pick – Initiating with Overweight
We are initiating coverage on SUZB5 with an Overweight recommendation and R$15 TP, supported by a real IRR of
12%, considerably above inflation-linked bonds. The stock price slumped 47% since October 2015, well beyond what
fundamentals dictate as evidenced by compelling valuations. The stock seems out of favor – consensus estimates are
falling – which provides a great entry point. According to our estimates, the stock is trading at a 2018E FCF yield of 11%,
supporting our recommendation. In our view, Suzano’s integrated model, brand reputation, professional management
and ongoing cost reduction initiatives should help to offset volatility in pulp prices and the FX rate, supporting stable
free cash flows over the next five years.
Suzano’s focus is on reducing its cash costs and developing new product lines in order to lower its exposure to the FX
rate and pulp-price volatility. The initiatives include the production of lignin, tissue and fluff pulp (from hardwood) and
investments in transgenic clones. Project 5.1 establishes industrial modernization and debottlenecking processes in
order to increase total pulp capacity (including integrated volumes) to 5.1 million tons in 2018 (currently at 4.7 million
tons) and dilute fixed costs. Management plans to lower cash cost per ton to US$125 in 2022, which we think is
aggressive. The paper business – responsible for 40% of revenues – helps Suzano to have less volatile results, backed by
domestic-driven demand and the competitive advantages of an integrated model. After a period of expansion, the
company improved its balance sheet – leverage is now at 2.4x ND/EBITDA, the strongest balance sheet in the sector.
SUZB5| Snapshot
Source: Bloomberg; Brasil Plural Research
Performance
Suzano is the second-largest short-fiber pulp producer in
the world and one of the top players in the P&W and
cardboard paper segments in Brazil. It holds an overall
market share of 40% and generates over R$10 billion in
revenues. The company has five industrial facilities in the
states of Maranhão, Bahia and São Paulo, all surrounded
by forestry assets, totaling 600 thousand hectares.
Suzano has large exposure to the export market, as
nearly 70% of revenues come from foreign clients in
Europe, Asia and the US.
Company Description
9
Stock Rating: Overweight
YE 2017 Target Price: R$15/share
Price (October 20th, 2016): R$10.2/share
IRR (real): 12%
Market Cap (R$ million): R$11,270
Avg. Daily Value (R$ thousands): R$48,015
52-Week Range: R$9.2 - R$19.3
Suzano 5 Principles
Principle Summary Score
Business
Suzano is well positioned to compete in both pulp and paper businesses. The company is fully integrated, has a diversified
production line, a proprietary distributor in the P&W segment, strong brand equity, a fragmented client base and is developing
new business segments. However, it is exposed to the volatility of the BRL and pulp prices. Corporate governance is average.
Average
Financial
The company has a weak history of cash generation, low ROIC, insufficient dividends and consumes significant working capital.
The weaker BRL and the capacity increase from the Imperatriz pulp mill amid high pulp prices have improved results since
2015. The company’s balance sheet is healthy, cash generation is solid and it seems the company is on track to obtain an
investment grade rating.
Weak
Growth
Suzano has a remarkable history of revenue and earnings growth, but with adverse effects on the balance sheet, dividends and
ROIC. From now on, earnings growth should come from smaller projects, such as new capacity in tissue and fluff, value-added
applications of lignin and debottlenecking measures to reduce cash costs. Its Project 5.1 should increase pulp production and
while reducing exposure to the BRL.
Average
Trading
The stock plummeted 47% in the last 12 months, hurt by the negative effect of falling pulp prices, the recent appreciation of
the BRL and fears of oversupply of hardwood pulp (i.e., APP’s OKI mill in Indonesia). SUZB5 is covered by 18 brokers, has a daily
average volume of R$70mn and consensus estimates for 2017continue falling.
Out of
Favor
Valuation
Suzano is our top pick in the pulp and paper sector as the stock offers a significant margin of safety according to three
valuation tools: a DCF-based R$15 price target; an 12% real IRR – the highest in the sector – and a 11% FCF yield 2018E. In our
view, Suzano’s integrated model, diversified revenues, professional management and ongoing cost reductions should help to
offset the volatility in pulp prices and the FX rate.
Overweight
40
80
120
160
200
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Suzano Ibovespa

Suzano is well positioned to compete in both the pulp and paper businesses. The company is fully integrated, has a diversified production line, strong brand equity in
paperboard and P&W, a fragmented client base and is developing new business segments. However, it has substantial exposure to the volatility of the BRL and pulp prices,
which reduces visibility in terms of future earnings. The largest customer accounts for 10% of consolidated revenues and the company is exposed to China, which provides
circa 22% of revenues.
Suzano dominates the P&W segment together with International Paper, with the two companies holding ~80% market-share in the uncoated segment, providing pricing
power that is not offered in the more intensely competitive coated paper segment. Suzano’s unique distribution strategy – through its proprietary seller “Suzano +” –
allows more and better services for customers, wider reach and cross-selling opportunities.
Suzano has three classes of shares, with the most liquid being the class A, SUZB5. Ten people from the Feffer and Guper families share control of the company through
Suzano Holding and direct stakes, totaling 56% of the total capital. The Board of Directors is comprised of nine members, of which five are independent from the controlling
group and met 22 times during 2015. Variable compensation represents more than 75% of management’s total payroll – Board members are also eligible for a performance
bonus, which is unusual – and the company adopts long-term incentive plans, including phantom shares and stock options. We appreciate that top management holds
nearly 0.5% of the total capital.
Suzano – Business
Strong Competitive Advantages
Source: Company Reports; Brasil Plural Research
Revenues Breakdown (2017E)
10
Pulp Revenues Breakdown Paper Revenues Breakdown
Pulp;60%
P&W;
31%
Cardboard;
8%
Other;1% Domestic;
12%
Asia;40%
Europe;
33%
North
America;
14%
Others;
1%
Domestic;
64%
South/Central
America;17%
North
America;
10%
Europe;
4%
Other;5%

According to our methodology and based on IFRS audited financial statements,
Suzano has weak financial scores. The past six years have been marked by large net
losses, lackluster cash generation, low single digit ROIC and excessive working
capital. We acknowledge, however, that Suzano’s returns and balance sheet were
largely impacted by acquisitions and the construction of the Imperatriz unit. We
recall that Suzano raised new equity in 2012 in the amount of R$1.5bn. The weak
BRL and the capacity increase from the Imperatriz pulp mill amid high pulp prices
improved results in 2015. Looking forward, we anticipate slightly better financial
ratios, especially in 2018 when capital expenditures normalize. FCF should remain
solid despite adverse FX rates and pulp prices, offset by tax incentives and
accumulated tax credits in the balance sheet (current balance of R$885mn).
Since 2010, returns on invested capital have been below the company’s cost of
capital. Suzano has a weak history of dividend payments relative to operating
earnings, and the dividend yield ranged between 1-2% (the by-laws determine a
pay-out ratio of 25% of the net income, but management targets a ratio to FCFs).
Suzano’s aggressive expansion wound down a few years ago, and this is behind
the company’s stronger balance sheet when compared to Fibria and Klabin, both
two years later in the de-leveraging game (Suzano is lowering its net debt/EBITDA to
2.4x from 5x in 2013). We expect the company to generate stable cash flows
supporting smaller investments in the 5.1 Project. Financial covenants seem
comfortable -- nearly 85% of debt is long term, cash balances exceed maturities until
December 2017, and it seems the company is on track to obtain an investment
grade rating. Export sales partly cover dollar-denominated debt of R$10 billion, the
remaining is hedged through derivatives (mainly Zero Cost Collar)
Suzano – Financials
Weak Scores, Low ROIC and Poor Dividends
Note: 1. Cash ROIC = (EBIT - t - WK change) / (Total debt + Equity + Minority Interest)
Suzano Key Ratios
Leverage – Net Debt/EBITDA
11
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0
1,000
2,000
3,000
4,000
5,000
2013 2014 2015 2016 2017 2018 2019 2020
EBITDA (LHS) ND/EBITDA (RHS)
KEY RATIOS 2011 2012 2013 2014 2015 2016E 2017E 2018E
EV/EBITDA 7.7x 10.2x 9.6x 8.2x 6.6x 5.1x 6.1x 5.7x
FCF Yield n.m. n.m. n.m. -7.8% 2.0% 10.9% 5.9% 11.0%
Capex to EBITDA 2.5x 2.2x 1.2x 0.6x 0.3x 0.5x 0.6x 0.4x
Net Debt/EBITDA 4.2x 5.0x 4.9x 4.1x 2.7x 2.4x 2.7x 2.4x
CROIC1 1% 2% 0% 1% 6% 11% 8% 6%
Working Capital/Sales 29% 20% 29% 28% 29% 23% 23% 23%

1.1
1.2
1.8
2013 2016E 2023E
Suzano – Growth
Harvesting After Aggressive Planting
Suzano has a remarkable history of revenue and earnings growth, but with adverse effects on the balance sheet,
dividends and ROIC. Two large transactions marked the company’s growth strategy -- the acquisition of Bahia Sul
Celulose in 2001 and partial acquisitions of Ripasa in 2005 and 2007. In 2015, earnings growth came from the FX rate
tailwind and higher pulp prices encouraging export sales. We think that in the short term management will focus on
organic growth, particularly its new capacity in fluff (100ktons/year), tissue paper (+120K tons/year), the production
of lignin and debottlenecking measures.
Suzano’s Project 5.1 will increase pulp capacity to 5.1 million tons from 4.7 million currently (including integrated and
market pulp), helping to dilute costs, supplying tissue production and increasing shipments to current markets. The
project also includes investments in biotechnology (through the subsidiary FuturaGene, acquired in 2010), the
production of fluff pulp from hardwood, the utilization of lignin to replace petrochemicals and two new tissue paper
machines. Considering execution risks and potential delays in the start-up, we are not incorporating future projects in
our model. While we estimate flat net revenue CAGR over the next few years, FCF should amount to R$1.2bn in 2018,
more than tripling since 2015.
Eucafluff: Suzano is the first company to produce fluff out of hardwood by adapting a former P&W machine - the mill
has the flexibility to produce one or the other. The company started operations at the end of 2015 and local clients are
still testing the product. After the full ramp-up, the unit should sell 100k tons/year.
Tissue: Suzano plans to add two tissue machines of 60k tons/year, one in Imperatriz and one in Mucuri, by 2H17. The
goal is to benefit from the pulp production line in the facilities, in a completely integrated model and unlock the
benefits from tax credits in the region (value-added tax credits, or ICMS).
Lignin: Lignin is a component of wood, released during a pre-bleaching phase in the process of producing pulp and
generating power, usually sold to third parties in the electricity industry. However, lignin can be used as an alternative
raw material for petrochemicals. New products made of lignin could be three times more profitable than the sale of
energy. The company plans to start producing lignin for the industrial segment by June 2017, with an expected
annualized EBITDA of R$40mn.
FuturaGene: FuturaGene is a global company acquired by Suzano in 2010 to develop genetically modified eucalyptus.
According to Suzano, the implementation of genetically modified clones could increase forestry productivity in 20%.
Despite optimistic results with transgenic samples, the FSC (Forest Stewardship Council) forbids their commercial use.
Global Fluff Production
Source: Risi; Brasil Plural Research
Note: 1. Risi estimates
Brazilian Tissue Demand1 (mn tons)
Pulp Production and Cash Cost
12
CAGR: 5%
North
America;
90%
Europe;
6%
Rest of the World;4%
170
175
180
185
190
195
3,000
3,500
4,000
4,500
5,000
5,500
2015
2016E
2017E
2018E
2019E
2020E
2021E
Total Pulp Production (k tons) - LHS
Cash Cost (US$/ton) - RHS

We look for signs of popularity driving stocks ahead of their fundamentals and adopt a contrarian philosophy – the market tends to perpetuate the status quo and fall into
finance behavior traps. So we study whether the stock is weak and trading out of favor and if the company is facing temporary problems, such as poor short-term earnings
prospects, poor newsflow – “bad news is an investor’s best friend” (W.Buffett) – and there is irrational action.
SUZB5 shares plummeted 45% in the last 12 months, hurt by the negative effect of falling pulp prices and a stronger BRL. We believe the stock is out of favor despite its
popularity (average daily volume of R$70mn and covered by 18 brokers), as news flow related to falling pulp prices, sluggish global economic growth and a stronger BRL is
affecting investor sentiment. In addition, there is fewer Buy recommendations now than six months ago. We are closely monitoring the start-up of APP’s OKI project in
Indonesia, the largest contributor to supply in the near term. Lastly, the next round of quarterly results will suffer due to high comps from last year and scheduled
maintenance stops, which should keep the stock inexpensive in the very short term.
We examined the evolution of consensus estimates on Bloomberg and noticed sequential downward revisions recently, likely to incorporate lower pulp prices and the
adverse FX rate for export sales. We highlight our estimates are below consensus, primarily when forecasting EBITDA and FCFs.
Suzano – Trading
Out of Favor
Note: * Current data as of 10/17/2016
2017E Consensus Evolution (R$mn)Suzano EV/EBITDA 12 Months Forward
13
Short Interest (mn shares)
4
5
6
7
8
9
10
11
12
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
EV/EBITDA AVERAGE
0
500
1,000
1,500
2,000
2,500
3,000
0
1,000
2,000
3,000
4,000
5,000
6,000
12M 6M 3M Current*
EBITDA (lhs) FCF (rhs)
0
5
10
15
20
25
30
35
40
45
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16
“A simple rule dictates my buying: Be fearful when
others are greedy, and be greedy when others are
fearful” (Warren Buffett, “Buy American. I am”. The
New York Times, October 16, 2008).

We are initiating coverage on SUZB5 with an Overweight recommendation and R$15
TP. The stock offers real IRR of 12% for equity investors, considerably above inflation
linked bonds (i.e., risk free rates) and thus a good margin of safety. Suzano is our top
pick in the pulp and paper sector for having the highest implied IRR, consistent
cash generation, compelling multiples, diversified revenues and a strong balance
sheet. The stock price slumped 47% over the last 12 months, consensus estimates
are falling and, accordingly, valuations have become compelling. We assume a long-
term average BEKP price (FOEX Europe) of US$701 to build our five-year DCF and IRR
models, assuming moderate appreciation of the BRL as determined by our
macroeconomic team.
We have low conviction in the DCF and IRR methods for the very unpredictable
nature of two key input variables, global pulp prices and the FX rate. For every
US$30 of change in the price curve of HW (flat at US$701/ton), Suzano’s fair value
per share changes by R$2.0. Ceteris paribus, for every 20-cents the BRL depreciates
in each year of our forecasting period, our target price moves by R$4.1 per share.
We prefer to utilize short-term, high-conviction valuation metrics, such as trading
multiples (FCF yields or P/CF). According to our estimates, the stock is trading at
2018E FCF yield of 11%, supporting our recommendation.
We determine both our target price and real adjusted IRR’s on free cash flows to
equity, calculated in local currency, and apply local discount and growth rates (cost
of equity and perpetuity growth). Considering Suzano’s exposure to the volatility of
pulp prices, unpredictable FX rates impacting export sales offset by the solid
business of cardboard and P&W papers, we combine moderate discount rates with
low perpetuity growth arriving at a rational exit multiple – 1/(Ke-g) – of 13x FCF in
the terminal value calculation. We use a higher exit multiple in Klabin’s valuation –
for its lower exposure to commodities and stronger scores – and a lower multiple for
Fibria, for its dependence on pulp prices and the FX rate.
Suzano – Valuation
Suzano Is the Most Undervalued Stock in P&P
2017E EBITDA Sensitivity to Pulp Prices and BRL
Every R$0.1 variation in BRL impacts EBITDA in 6.5%, while a US$30/t change in pulp prices
moves EBITDA by 7%
DCF and IRR Calculation
14
Avg. BRL 2017E
2.86 2.96 3.06 3.16 3.26
BHKP2017E
761 3,248 3,477 3,706 3,935 4,163
731 3,047 3,269 3,491 3,713 3,934
701 2,846 3,061 3,276 3,490 3,705
671 2,645 2,853 3,061 3,268 3,476
641 2,444 2,645 2,845 3,046 3,247
R$ million 2017E 2018E 2019E 2020E 2021E
EBITDA 3,276 3,390 3,693 4,058 4,281
(-) Change in Working Capital 81 (63) (126) (141) (119)
(-) Capital expenditures (1,956) (1,263) (1,320) (1,379) (1,730)
(-) Taxes - (188) (289) (365) (409)
(-) Net Financial Expenses (752) (657) (589) (560) (506)
Free Cash Flow to Equity 649 1,219 1,368 1,613 1,518
Equity Value 16,487
Shares Outstanding (Mn) 1,095.2
Price Target (R$) 15.0
Curr. Mkt Cap 2017E 2018E 2019E 2020E 2021E Perpetuity
(11,050) 649 1,219 1,368 1,613 1,518 19,274
Implied IRR, Real = 12%

Suzano
Financial Statements
Source: Company Reports; Brasil Plural Research 15
Income Statement (R$ million) 2011 2012 2013 2014 2015 2016E 2017E 2018E
Net revenues 4,848 5,192 5,689 7,265 10,224 9,878 9,277 9,537
Cost of Services 3,764 4,028 4,190 5,356 6,184 6,367 6,574 6,785
Gross Profit 1,084 1,164 1,498 1,909 4,040 3,511 2,703 2,752
Gross Margin 22.4% 22.4% 26.3% 26.3% 39.5% 35.5% 29.1% 28.9%
Total Operating Expenses 408 620 523 679 970 815 835 860
Sales expenses 248 248 251 301 410 341 325 334
G&A Expenses 334 404 377 393 456 291 325 334
Tax Expenses - - - - - - - -
Other expenses (174) (32) (105) (14) 105 160 158 162
Amortization of intangibles - - - - - 24 28 30
Operating Income 676 544 976 1,230 3,070 2,695 1,867 1,893
Operating Margin 14.0% 10.5% 17.1% 16.9% 30.0% 27.3% 20.1% 19.8%
Depreciation and Amortization 625 727 889 1,216 1,419 1,297 1,408 1,497
EBITDA 1,302 1,272 1,865 2,446 4,489 3,992 3,276 3,390
EBITDA Margin 26.8% 24.5% 32.8% 33.7% 43.9% 40.4% 35.3% 35.5%
Net Financial Income (775) (855) (1,256) (1,594) (4,429) 1,047 (515) (838)
Financial Income 525 295 246 265 285 243 305 267
Financial Expenses 1,300 1,151 1,502 1,859 4,714 (805) 821 1,105
Non-operational income - - - - - - - -
Pre-Tax Income (98) (311) (280) (364) (1,359) 3,742 1,352 1,055
Income Taxes 128 129 60 102 433 (423) (251) (278)
Minority Interest - - - - - - - -
Net Income 30 (182) (220) (262) (925) 3,319 1,101 777
Net Margin 0.6% -3.5% -3.9% -3.6% -9.1% 33.6% 11.9% 8.1%
EPS 0.08 (0.17) (0.20) (0.24) (0.84) 3.03 1.01 0.71
Cash flow statement (R$ million) 2011 2012 2013 2014 2015 2016E 2017E 2018E
EBITDA 1,302 1,272 1,865 2,446 4,489 3,992 3,276 3,390
(-) Change in working capital (247) 211 (429) (498) (1,113) 170 81 (63)
(-) CAPEX (3,247) (2,784) (2,257) (1,359) (1,458) (2,100) (1,956) (1,263)
(-) Taxes (330) (418) (471) (456) (517) (40) - (188)
FREE CASH FLOW TO FIRM (2,523) (1,718) (1,292) 132 1,402 2,022 1,401 1,876
(-) Net financial expenses (316) (761) (873) (909) (1,061) (815) (752) (657)
FREE CASH FLOW TO EQUITY (2,839) (2,480) (2,165) (777) 341 1,207 649 1,219
(+) Increase in debt 1,587 1,975 2,158 884 950 - - -
(+) Other 944 1,651 (541) 12 (2,259) - - -
(+) Capital increase - - - - - - - -
(-) Dividends (154) (83) (100) (122) (270) (300) (195) (366)
CHANGE IN CASH POSITION (462) 1,064 (648) (4) (1,238) 907 454 853
Cash and equivalents 3,274 4,338 3,690 3,686 2,448 3,355 3,809 4,662

Suzano
Balance Sheet (R$ million) 2011 2012 2013 2014 2015 2016E 2017E 2018E
Current Assets 5,344 6,687 6,472 6,609 6,589 6,670 7,067 8,008
Cash and Eqiuv. 3,274 4,338 3,690 3,686 2,448 3,355 3,809 4,662
Accounts receivable 1,041 1,103 1,474 1,207 1,886 1,646 1,546 1,590
Inventories 636 684 905 1,077 1,316 1,326 1,370 1,414
Tax credits 265 289 310 476 597 - - -
Other Current Assets 128 274 93 163 342 342 342 342
Long-Term Assets 608 662 935 877 865 1,078 828 737
Gross PPE 17,083 19,444 21,359 22,154 22,528 24,628 26,584 27,847
Accumulated Depreciation 3,942 4,296 4,807 5,472 6,182 7,479 8,887 10,384
Net PP&E 13,142 15,148 16,552 16,681 16,346 17,149 17,697 17,463
Investments 2,407 2,644 2,966 3,659 4,131 4,131 4,131 4,131
Intangible 215 213 225 292 330 330 330 330
Deferred Assets - - - - - - - -
Total Assets 21,715 25,353 27,149 28,119 28,260 29,358 30,051 30,668
Current Liabilities 3,143 2,856 2,281 3,068 3,511 3,451 3,475 3,500
Short-term debt 2,253 1,622 1,009 1,795 1,819 1,819 1,819 1,819
Suppliers 415 876 877 502 581 531 548 565
Salaries and labor 102 130 126 141 165 177 183 188
Taxes 44 45 53 55 56 35 37 38
Provisions - - - - - - - -
Dividends 84 1 1 0 0 0 0 0
Other 245 182 217 575 889 889 889 889
Non-Current Liabilities 8,899 11,495 14,181 14,737 15,557 13,695 13,459 13,640
Long term debt 6,491 9,097 11,868 11,965 12,892 11,030 10,794 10,975
Other 182 224 216 769 1,123 1,123 1,123 1,123
Provisions 2,227 2,174 2,096 2,003 1,542 1,542 1,542 1,542
Total Liabilities 12,042 14,351 16,462 17,804 19,068 17,146 16,934 17,140
Shareholders Equity 9,674 11,002 10,687 10,315 9,192 12,211 13,118 13,528
Total Liabilities and Equity 21,715 25,353 27,149 28,119 28,260 29,358 30,051 30,668

Klabin
Initiating With Overweight
We initiate coverage of Klabin with an Overweight recommendation and R$21 TP, supported by a real IRR of 9% that is
above inflation-adjusted bonds, the main reason for our bullish stance. The company has a strong business profile and we
highlight its solid competitive position, the foundation of its goodwill and its brand recognition – in fact, Klabin operates the
best and safest business model in the sector. The ramp-up of the Puma unit and the conclusion of investments should allow
for rapid deleveraging (4.5x net debt/EBITDA in 16E and 3.0x in 17E), strong FCF and rising ROIC in the years that follow. The
stock is currently trading at 11% FCF yield 2018E, which is inexpensive.
As one of the largest paper producers in the country, Klabin holds a significant competitive advantage when compared to its
peers, which is explained by its integrated model and energy surplus. The company enjoys pricing power thanks to its large
scale, vast product portfolio, efficient distribution and brand reputation. Klabin’s solid earnings should improve in the near
term, encouraged by the ramp-up of its Puma Project and the rebound of the Brazilian economy, driving the demand for
value-added cardboard products. We welcome the company’s ability to sail through the domestic economic deceleration
given its diversified product portfolio and its flexibility to arbitrate between the domestic and the export market.
Business
The company has significant market share in cardboard and kraft paper, and its integrated model provides it substantial
cost advantages. Moreover, Klabin’s brand is widely known in Brazil and it is the only manufacturer of liquid cardboards,
a premium product line. Management is professional, providing business and product expertise, are shareholders and
the company adopts good standards of corporate governance to offset the influence of the controlling family and the
dual classes of share in the units.
Strong
Financial
Historically low cash generation, large working capital, long cash conversion cycle and ROIC in line with company’s cost
of capital. The balance sheet is highly levered, but we anticipate solid FCF generation with the ramp-up of the pulp unit.
The company has a long history of dividend payments and we expect it to continue following its unofficial payout
guidance of 20% of EBITDA.
Average
Growth
Klabin’s growth is clearer when compared to peers, and history evidences low dependence on macroeconomic factors
and the capacity to explore niches (liquid packaging), markets (export sales) and new products (hardwood pulp). The
ramp-up of the Puma Project is Klabin’s short-term growth catalyst, and we expect it to boost the company’s
consolidated EBITDA in 2017. The company also plans to increase its cardboard capacity with a new machine.
Strong
Trading
Klabin’s units have not sold off as happened with Fibria and Suzano’s shares. We anticipate strong results in the
following quarters backed by the ramp-up of the pulp unit. Klabin is a broadly covered stock with high liquidity,
but consensus estimates are in a downtrend recently. Forward consensus valuations are in line with historical
average. Definitely not out of favor.
Average
Valuation
Klabin’s units offer real IRR of 9%, above inflation-adjusted bonds and the main reason for our bullish stance. The
stock is currently trading at 11% FCF yield 2018E, which seems inexpensive. We believe Klabin operates the best
and safest business model in the sector, and accordingly such valuations offer sufficient margin of safety for
recommending the stock.
Overweight
KLBN11| Snapshot
Performance
Klabin is a leading integrated paper producer in Brazil,
with 16 industrial units -- 15 in Brazil and one in
Argentina. Founded in 1899 by the Klabin and Lafer
families, the company produces paper and board for
packaging, corrugated board, industrial bags and wood.
Klabin has a forestry base of approximately 450 thousand
hectares, largely composed of pine and eucalyptus. After
the start-up of the Puma Project in March, the company
expanded its pulp business and is now producing
hardwood, softwood and fluff. Each unit is composed of
four preferred shares and one common share, and trades
under Bovespa’s Level 2 corporate governance standard.
Company Description
17
Klabin 5 Principles
Stock Rating: Overweight
YE 2017 Target Price: R$21.0/share
IRR (real): 9%
52-Week Range: R$14.8 - R$24.9
60
100
140
180
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Klabin Ibovespa

Klabin – Business
Integration, Diversification and Brand Equity
We believe the company has a strong business profile. Klabin’s earnings have less volatility when compared to the
pulp market, as over 70% of its sales are comprised of paper products. Also, Klabin’s largest end user in the
cardboard and corrugated box segment is the food and beverage sector, which is resilient in economic recessions.
The company dominates the cardboard market, in which it holds more than 30% market share in Brazil. Its pine
forestry base makes Klabin the only softwood producer in the country, providing it with a monopoly in the
production of coated cardboard for liquids, which requires the use of more resistant fibers. We also recall the
agreement with Tetra Pak, which is the largest consumer of cardboard for liquids and accounts for ~20% of Klabin’s
consolidated revenues.
The production of kraftliner is adjusted between the conversion to industrial bags, corrugated boxes or exports
according to swings in demand. The integrated model (i.e. supplying its own pulp for the paper units) reduces the
dependence on OCC, while the availability of virgin fiber enables the production of high-end products, i.e., rigid
papers with less weight. As a result, Klabin has superior profitability when compared to non-integrated players. The
high switching cost in the cardboard segment and Klabin’s vast product portfolio with substantial production scale
provide it with reasonable pricing power.
In spite of the influence of the Klabin family in shareholder control and the dual classes of shares contained in the
units, we believe Klabin has good standards of corporate governance. The Board is composed of 13 members, five
of whom are independent from controlling shareholders, and met 23 times in 2015. The company has an active fiscal
council and the top management is mostly professional, with diversified industry experience. Senior and mid-level
officers have individual goals and are entitled to profit sharing based on the performance – revenues, EBITDA and
ROIC – of their department. The top management holds the stock, has 70% of the total compensation linked to
consolidated results, a significant improvement compared to 30% historically, and the company matches when they
use bonuses to purchase stock. Historically, variable compensation represents only 0.8% of company’s EBITDA.
Lastly, the company has important long-term investors and bondholders, such as Grupo Ligna, Temasek Holdings and
the Capital Group. We also recall that the stock units have 100% tag-along rights under Bovespa’s Nível 2 of
corporate governance.
Klabin Products Markets Destination
Forestry Productivity
Food;67%
Other
Consumer
Goods;
13%
Building;
8%
Others;
12%
58
42 40
35
0
10
20
30
40
50
60
70
Klabin Eldorado Fibria Suzano
MAIperCompany(m3/ha/y)

Klabin produced an average score in our financial analysis. Excluding the expansion period
related to the Puma Project, the company generated modest cash flows. In the 2011-2016E
period, we calculated accumulated profits of R$4.1 billion, but the company burned R$5.7 billion
in free cash flows. In addition, cash conversion cycle is long, usually exceeding 80 days, and
working capital exceeds 25% of revenues. On the positive side, we estimate that the ramp-up of
Puma and the reduction of capital expenditures (limited to maintenance and planting at around
20% of EBITDA) should boost the generation of cash to as much as R$1.7 billion in 2017. Klabin’s
return on invested capital has historically been lackluster – in the single digits and in line with its
cost of capital – but we anticipate ROIC to improve following the start of Puma and the forecast
economic rebound in Brazil.
Klabin is in a fast deleveraging mode after net debt-to-EBITDA peaked at 6.3x at the end of
2015 (the company has no financial covenants). According to our estimates, the ratio should fall
to 4.5x by year-end and 3.0x by the end of 2017. The debt schedule seems adjusted to Klabin’s
cash generation, as less than 20% is due in 18 months.
The company also has a long history of dividend payments. The bylaws set a minimum payout of
25% of net income, but the company distributed R$2.0 billion since 2011, an effective ratio of
70% of earnings. In our model, the non-cash effects of FX rate changes affect the bottom line and
therefore we prefer to estimate dividends based on the unofficial payout guidance of 20% of
EBITDA.
Klabin – Financial
Lackluster ROIC, Leveraged Balance Sheet
Note: 1. Cash ROIC = (EBIT - t - WK change) / (Total debt + Equity + Minority Interest) 19
Klabin Key Ratios
We Anticipate a Fast Deleverage Following Puma’s Ramp-up
Debt Maturity
358
575
932
2,287
2,249
2,266
2,744
2,096
1,510
770
2,139
200
3Q16
4Q16
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025/26
Local currency: R$ 5.6 bn
Avg. tenor: 40 months
Foreign currency: R$ 12 bn
Avg. tenor: 50 months
Local
Currency
5,168
Foreign
Currency
12,024
GrossDebtR$17,192mn
KEY RATIOS 2011 2012 2013 2014 2015 2016E 2017E 2018E
FCF Yield 3.8% 2.4% 1.3% -15.9% -18.1% -3.5% 9.8% 11.3%
CROIC1 11% 19% 8% 9% 6% 5% 7% 8%
Working Capital/Sales 23% 25% 27% 29% 35% 23% 23% 23% 0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2014 2015 2016E 2017E 2018E 2019E
Millions

Klabin’s earnings history demonstrates low dependence to macroeconomic factors and the capacity to explore niches, markets (export sales) and new products
(hardwood pulp). The sluggish economic performance in Brazil since early 2014, which drastically affected the demand for paper, had nearly no impact on Klabin’s EBITDA –
which increased 15% since 2013 – but had a slight negative effect on margins. Klabin’s earnings growth in the short term is coming almost exclusively from the start of
operations at the Puma pulp mill. The pulp unit should fully ramp-up by the end of 2016, producing over 850ktons (selling about 550 ktons to Fibria in a commercial
agreement) and boosting the company’s EBITDA by 19% vs. 2015. In the long run, we think Klabin will convert part of its hardwood production into raw material for its paper
units, particularly for a new cardboard machine.
The company’s next expansion project should be in the paper segment, through a new cardboard machine with total annual capacity of 450ktons and start-up likely by
the end of 2018. Based on Klabin’s historical margins in the segment, we calculated a real IRR of 9% for the project, equivalent to R$0.50 per unit, which we do not include in
our price target calculation. We recall that Klabin should use part of Puma’s hardwood pulp to supply the new machine – it has a waiver clause with Fibria to anticipate the
phase-out of the contract in the amount of 250ktons on the initiation of a new paper line. We expect Klabin to direct the output – value added liquid packaging boards and
cup stock board – to the export market, especially to the US where it has nearly no exposure.
Klabin should gradually increase market share over time in the paper segment in Brazil, but not through acquisitions in the short term -- Klabin’s current balance sheet, the
conclusion of Puma and the new cardboard machine should limit its appetite. In addition, potential targets in the cardboard segment are small (especially Papirus and Ibema),
have limited funding and have controlling shareholder issues.
Klabin – Growth
Resilient and Low-Risk Growth
Source: Poyry; Brasil Plural Research
Klabin Has Exposure to Segments With High Growth PotentialNew Cardboard Machine’s Model
20
0%
1%
2%
3%
4%
-1%
-2%
-3%
-4%
0% 20% 40% 60% 80% 100%
Demandgrowthperyear
Share of consumption in 2014
MarketA
MarketB
MarketC
Market D
Market E
Pulp
Kraftliner and
recycled paper
Coated
boards
Sackkraft&
Industrialsbags
KLABIN MARKETS
Tissue
Containerboards
Cartonboards
Sackpaper
New Cardboard Machine (R$mn) 2017E 2018E 2019E 2020E 2021E
Net Revenues - 298 1,414 1,496 1,584
Volume (th tons) - 100 450 450 450
Price 2,941 2,983 3,142 3,326 3,519
% Mg EBITDA 40% 40% 40% 40%
(+) EBITDA Cardboard - 119 566 599 633
(-) EBITDA Pulp - 24 112 117 121
(=) EBITDA - 95 453 482 512
(-) Working Capital - (20) (50) (50) (50)
(-) Capex (1,654) (1,117) (113) (120) (128)
(=) FCFF (1,654) (1,042) 290 311 334
Debt 980 980 980 980 980
(-) Interest Expenses x (1-t) (37) (37) (37) (37) (37)
(=) FCFE (1,691) (1,080) 252 274 297

Klabin is a popular and well-covered stock (KLBN11 is a unit made up of one common share and four PN shares) and has average daily volume of R$44mn. KLBN11 is covered
by 18 brokerage houses, but over the last six months consensus has sequentially lowered earnings estimates. However, the units have not sold off as happened with Fibria
and Suzano’s shares. The unit reached its historical peak of R$24.2 in November 2015, favored by a weaker BRL that encouraged export sales – and the company’s resilient
operating ratios last year. Lastly, forward consensus valuations are in line with the historical average.
Pulp and paper stocks in Brazil move in high correlation with news related to the supply-and-demand of pulp in the global market, the commodity price and FX rates. On one
hand, the start-up of the OKI project in Asia should have negative impact on investor sentiment, raising fears of an oversupply in the market pulp. We expect earnings in
early 2017 to be encouraging, mostly through the ramp-up of the pulp unit and an eventual recovery of the domestic economy.
Lastly, we highlight that Klabin’s current financial situation is on the radar screen. The company’s high leverage amid high interest rates continue to limit cash flows and hold
back new growth projects. Nonetheless, a fast ramp-up of Puma, buoyant economic leading indicators and updates on the cardboard project could improve sentiment.
Klabin – Trading
Definitely Not Out of Favor
2017E Consensus Evolution (R$ mn)Klabin EV/EBITDA 12 Months Forward
21
Short Interest (mn Shares)
4
5
6
7
8
9
10
11
12
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
EV/EBITDA Average
0
500
1,000
1,500
2,000
2,500
3,200
3,400
3,600
3,800
4,000
4,200
4,400
12M 6M 3M Current*
0
10
20
30
40
50
60
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16

We initiate coverage of Klabin with an Overweight recommendation and R$21 TP,
supported by a real IRR of 9%, above inflation-adjusted bonds and the main
reason for our bullish stance. The company’s strong track-record, Klabin’s flexibility
to supply both the domestic and the export market, high quality product mix and
resilient operating results imply lower risk relatively to Suzano and Fibria, and as
such there is sufficient margin of safety in current valuations. Our long-term
estimates rely on fragile assumptions such as pulp prices and FX rates, and thus we
center all of our ratings on the 2018E FCF yield. The stock is currently trading at
11% FCF yield 2018E, which is inexpensive.
Our target price and IRR calculation utilize a DCF calculation, incorporating FCFE
estimates over the next five years. The company has a strong business profile and
we highlight its solid competitive position, the foundation of its goodwill and brand
recognition – in fact, Klabin operates the best and safest business model in the
sector. Thus, we select a higher exit multiple (P/FCF) when calculating the terminal
value, 14x, when compared to Suzano and Fibria’s models, at 13x and 12x,
respectively.
We also calculate the net present value of adding a new cardboard machine, which
we do not include in our model given the uncertainties related to the timing of the
start-up and investment schedules. According to our estimates, the new machine
would add R$0.5/unit, resulting in a 9% real IRR.
Klabin – Valuation
The Best Business Model at a Reasonable Price - Overweight
Source: Brasil Plural Reserach
Every R$0.1 variation in BRL impacts EBITDA in 3%, while a US$30/t change in pulp prices
moves EBITDA by 2%
22
Avg. BRL 2017E
2.86 2.96 3.06 3.16 3.26
BHKP2017E
761 2,999 3,085 3,171 3,256 3,342
731 2,949 3,033 3,117 3,201 3,286
701 2,899 2,982 3,064 3,146 3,229
671 2,850 2,930 3,011 3,092 3,172
641 2,800 2,879 2,958 3,037 3,115
R$ million 2017E 2018E 2019E 2020E 2021E
EBITDA 3,064 3,291 3,490 3,750 4,045
(-) Change in Working Capital (201) (99) (105) (127) (123)
(-) Capital expenditures (726) (764) (804) (852) (1,700)
(-) Taxes - (138) (361) (441) (539)
(-) Net Financial Expenses (440) (318) (173) (98) 32
FREE CASH FLOW TO EQUITY 1,696 1,973 2,047 2,232 1,715
Equity Value 22,531
Shares Outstanding 1,079
Curr. Mkt Cap 2017E 2018E 2019E 2020E 2021E Perpetuity
(17,388) 1,696 1,973 2,047 2,232 1,715 24,246

Klabin
EBITDA 1,077 1,352 1,707 1,715 1,967 2,347 3,064 3,291
(-) Change in working capital 135 (34) (208) (410) (370) (408) (201) (99)
(-) CAPEX (438) (654) (899) (2,945) (4,627) (2,415) (726) (764)
(-) Taxes (112) (120) (150) (11) (16) (15) - (138)
FREE CASH FLOW TO FIRM 662 544 449 (1,651) (3,046) (491) 2,136 2,291
(-) Net financial expenses (256) (295) (307) (393) (765) (125) (440) (318)
FREE CASH FLOW TO EQUITY 406 249 143 (2,044) (3,811) (616) 1,696 1,973
(+) Increase in debt 5,297 738 928 4,022 7,036 - - -
(+) Other - (517) (548) 1,119 (2,979) 330 (15) (16)
(+) Capital increase - - - - - - - -
(-) Dividends (207) (275) (301) (332) (378) (469) (613) (658)
CHANGE IN CASH POSITION 5,497 195 222 2,764 (133) (756) 1,068 1,299
Cash and equivalents 2,562 2,757 2,979 5,743 5,611 4,855 5,924 7,222
Net revenues 3,889 4,164 4,599 4,894 5,688 7,243 8,072 8,488
Cost of Services 2,557 1,937 2,871 2,650 3,445 4,828 5,375 5,571
Gross Profit 1,332 2,227 1,729 2,244 2,242 2,415 2,697 2,917
Gross Margin 34.3% 53.5% 37.6% 45.9% 39.4% 33.3% 33.4% 34.4%
Total Operating Expenses 536 582 609 545 750 1,016 1,051 1,105
Sales expenses 321 345 363 380 429 559 605 637
G&A Expenses 249 274 281 298 338 497 484 509
Tax Expenses - - - - - - - -
Other expenses (35) (10) (11) (85) 13 4 - -
Amortization of intangibles 0 (26) (22) (49) (30) (44) (38) (41)
Operating Income 797 1,644 1,119 1,700 1,492 1,399 1,645 1,812
Depreciation and Amortization 280 (293) 587 15 475 948 1,419 1,479
EBITDA 1,077 1,352 1,707 1,715 1,967 2,347 3,064 3,291
EBITDA Margin 27.7% 32.5% 37.1% 35.0% 34.6% 32.4% 38.0% 38.8%
Net Financial Income (501) (548) (739) (646) (3,440) 2,454 (119) (564)
Financial Income 346 311 276 628 975 1,033 718 674
Financial Expenses 847 858 1,015 1,274 4,415 (1,421) 837 1,237
Non-operational income - - - - - - - -
Pre-Tax Income 296 1,096 380 1,054 (1,948) 3,853 1,527 1,248
Income Taxes (113) (344) (90) (323) 695 (433) (410) (508)
Net Income 183 752 290 730 (1,253) 3,420 1,117 740
Net Margin 4.7% 18.1% 6.3% 14.9% -22.0% 47.2% 13.8% 8.7%
EPS 0.21 0.85 0.33 0.68 (1.16) 3.17 1.04 0.69

Klabin
Current Assets 4,083 4,432 4,826 7,900 8,676 7,881 9,200 10,644
Cash and Eqiuv. 2,562 2,757 2,979 5,743 5,611 4,855 5,924 7,222
Accounts receivable 821 982 1,145 1,149 1,501 1,811 2,018 2,122
Inventories 506 474 496 564 701 1,076 1,120 1,161
Tax credits 101 135 120 332 737 13 13 13
Long-Term Assets 400 374 386 750 1,457 1,763 1,353 983
Gross PPE 8,244 7,364 8,108 10,795 14,770 17,185 17,911 18,675
Net PP&E 4,917 5,379 5,910 8,351 12,009 13,146 12,469 11,769
Investments 618 462 467 495 507 507 507 507
Intangible 2,723 3,450 3,331 3,678 3,619 3,619 3,619 3,619
Total Assets 12,742 14,098 14,919 21,174 26,268 26,916 27,148 27,522
Short-term debt 910 1,121 1,125 1,755 2,046 2,046 2,046 2,046
Suppliers 335 318 345 439 702 861 896 929
Taxes 97 111 62 55 45 72 75 77
Provisions 430 39 50 50 62 62 62 62
Dividends - - - - - - - -
Other 56 52 70 80 111 111 111 111
Long term debt 4,387 4,914 5,839 9,231 15,976 13,396 13,075 13,320
Other 263 130 199 201 397 397 397 397
Provisions 1,201 1,865 1,710 2,165 1,381 1,381 1,381 1,381

Fibria
Growing in the Woods – Initiating with EW
Stock Performance
Fibria is the largest pulp producer in the world, with a
total capacity of 5.3 million tons of hardwood pulp,
growing to 7.25 million tons after the ramp-up of
Horizonte 2 project. The company is the result of a merger
between Aracruz Celulose and VCP, two well-known
Brazilian pulp companies. Fibria owns nearly one million
hectares of forestry assets and four pulp mills in Brazil,
with annual revenues close to US$3 billion, mostly
generated through export sales. Fibria only issues voting
shares, is jointly controlled by the BNDES and Votorantim,
and has 41% of equity free float. The company’s financial
statements follow the IFRS standards and it trades as an
ADR on the NYSE.
Company Description
25
Stock Rating: Equal Weight
YE 2017 Target Price: R$24.0/share
IRR (real): 5%
52-Week Range: R$18.3 - R$58.3
FIBR3| Snapshot
Fibria has average scores across our Five Principles and we think the stock’s sell-off was deserved, as earnings and
cash flows should take some time to rebound – it is too early for a bullish stance. Moreover, there is room for
additional consensus earnings downgrades in view of the higher debt ratios during 2017 and negative forces from
abroad, i.e, the appreciating BRL and lower pulp prices. The stock trades at only 7% FCF yield projected for 2018, when
capex starts to normalize, which is below the risk-free rate in the futures market. We are initiating coverage of Fibria
with an Equal Weight rating, R$24 target price and 5% implied IRR in real terms which does not seem a sufficient
margin of safety when considering risk-free inflation linked notes in Brazil, unpredictable earnings growth, low cash-
adjusted ROIC, volatile cash flows and an average business profile. The stock plunged 48% since the peak achieved in
September 2015, a direct effect of lower global pulp prices and the BRL appreciation, which should not reverse anytime
soon according to our macroeconomics team.
Fibria 5 Principles
Business
Fibria adopts firm risk management and internal controls, diversified production and intense R&D of new
business to circumvent weakness in the pulp market. It also has a concentrated customer base relative to
peers. Corporate governance practices have room to improve.
Average
Financial
Fibria has poor returns to shareholders, large working capital, and a high capex-to-EBITDA ratio. Fibria’s
CROIC (cash adjusted ROIC) and ROE have been volatile and in single digits, in spite of a very low cost of
debt. We estimate its financial profile to improve by 2019, with the ramp-up of the new pulp mill
Weak
Growth
Fibria’s earnings growth is unpredictable, like other pulp producers, but management has ambitious plans
for the company, evidenced by the commissioning of the H2 project, the acquisition of Macuco’s port
terminal in Santos and the developments we have seen in logistics, genetic research of eucalyptus and
projects in non-pulp businesses.
Average
Trading
We think that Fibria’s stock will become out of favor sometime during 2017. Although the stock fell 57%
since the peak achieved on September 2015, forward consensus valuations have bounced back and we
see room for downward revisions, as analysts revisit BRL and pulp prices estimates. The stock has a lot of
visibility, covered by 17 brokerage houses and with average daily volume of R$60mn.
Average
Valuation
We set a R$24 price target (DCF-based with free cash flows to equity) and 5% inflation adjusted IRR, which
does not seem a sufficient margin of safety when taking into account risk-free, inflation-linked notes in
Brazil, unpredictable growth, low ROIC and volatile cash flows. Fibria’s 2018 FCF yield of 7% is below
future interest rates, supporting our neutral stance.
Equal Weight
60
110
160
210
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Fibria Ibovespa

Fibria follows well-established risk management and internal controls, diversified production and intense R&D to bridge the weakness of the pulp business, which is
marked by unpredictable commodity prices, dependence on FX rates, and a lack of bargaining power. Pulp producers compete to become large and to provide the market
pulp at the lowest possible cost to offset limited bargaining power and no switching costs with customers. Fibria has a concentrated customer base relatively to peers, with
the three largest customers accounting for 54% of sales, which implies a higher discount to list prices. Fibria’s competitive position results from operations at four sites, with
six cooking technologies and eight bleaching lines (we visited three last month in Aracruz, State of Espirito Santo), investing in fiber composites, new eucalyptus clones and
new products – such as TCF, Eucastrong and biofuel.
The large economies of scale increase the barriers for new players and so we see Fibria determined to compete by pursuing long-run cost superiority: i) a high-quality forest
close to the mills, ii) up-to-date facilities, and iii) efficient low-cost logistics. Fibria’s Horizonte 2 project is part of this strategy, adding economies of scale in the Tres Lagoas
site as well as modern equipment, abundant forests and reliable railway-based logistics. Fibria’s core export regions are largely comprised of developed markets – China
represents around 20% of net sales – and mostly to the tissue segment, which shows consistent growth.
Fibria – Business
Large Scale and Risk Management Offset Price Cycles
Source: Companies reports 2Q16 data; Brasil Plural Research
Fibria’s Core Markets
26
Europe,
36%
Asia, 33%
N. America,
21%
LatAm,
10%
Suzano Core Pulp Markets Eldorado Core Markets
Europe,
32%
Asia, 41%
N.
America,
14%
LatAm,
13%
Europe,
30%
Asia, 46%
N. America,
10%
LatAm,
14%

Fibria’s differentiation strategy is based on the research and development of new applications for leftover eucalyptus pulp, what management calls “bio strategy” in its
non-pulp business. As such, Fibria selected some initiatives, such as the lignin project (in an advanced stage after the acquisition of Lignol, Canada) and pilot projects on
pyrolysis (through the JV with North American Ensysn), nanocellulose and biocomposites. Management targets at least 10% of sales priced at a premium, such as the
Eucastrong and the TCF (Total Chlorine Free) fibers, both supported by intellectual property rights secured by patents. Fibria does not plan to return to the paper business in
Brazil since management fears the end of competitive barriers, particularly in the P&W segment. Management seems optimistic about the incremental value potential of the
lignin, which is currently burned to generate power for the mill (as part of the black liquor in the recovery boiler).
Fibria’s corporate governance practices have room for improvement. BNDES and the Votorantim group hold 58% of the total capital and established common votes in
previous meetings. Since the merger of VCP and Aracruz in 2009, management adopted better internal controls, risk management policies and capital allocation guidelines.
The Board of Directors is very active, meeting 17 times during 2015. The senior management is entitled to variable compensation attached to operating and financial targets,
and includes stock options and deferred bonuses. In the last three years, variable compensation accounted for 0.8-1.0% of consolidated EBITDA. Management holds nearly no
stock in the company and the history of share buybacks is negligible. We highlight that Fibria has relevant related-party issues: the BNDES accounts for 15% of the total debt
and various subsidiaries of the Votorantim Group have business with Fibria, such as land transactions, the sale of wood and financial transactions with Banco Votorantim.
Fibria – Business
Innovation, Product Development and Genetics
Source: Company reports; Brasil Plural Research
Shareholder StructureClassifying the Forest Base by Categories
27
Votorantim,
29%
BNDESPar, 29%
Free Float, 41%
10%
20%
40%
20%
10%10%
36%
33%
15%
6%
Diamond Gold Silver Bronze Lead
Current Effective Area Future Effective Area

Fibria scored poorly in our analysis of its financial principles, showing poor returns,
enormous working capital and a high capex-to-EBITDA ratio over time. We
assessed six years of financial statements, coinciding with the company’s adoption of
IFRS reporting standards in 2010. Since then, Fibria’s CROIC (cash-adjusted ROIC) and
ROE have been volatile and in the single-digits in spite of a very attractive cost of
debt (subsidized loans from BNDES and export guarantee notes result in 3-4% annual
interest cost in USD terms). Maintenance capex, including forestry planting,
consume as much as 40% of the reported EBITDA, and we anticipate this should not
change going forward. We highlight very low effective income taxes, which benefit
from tax losses in the past, amortization of goodwill related to the acquisition of
Aracruz and federal tax credits.
The current expansion phase is adversely affecting the company’s financial ratios and
balance sheet. For instance, net debt to EBITDA should continue to rise and exceed
5.0x in 2017, hurt also by the strong BRL and lower pulp prices. Fortunately, the
company has inactive financial covenants with creditors – they allow net debt-to-
EBITDA to surge to any level during the construction of H2 provided the company
maintains its investment grade credit rating. Nonetheless, the current 4.5x net debt-
to-EBITDA restrictive covenant would be effective upon a downgrade. Management
plans to maintain the investment grade rating with the leading rating agencies and
is following their criteria – in fact, Fibria adopted a new dividend policy, a minimum
cash policy and increased long-term debt vs. short-term maturities. We estimate
Fibria’s financial profile should improve by 2019, with the ramp-up of the new pulp
mill and its incremental cash generation.
The company utilizes derivatives for hedging both FX and interest rate risk, in
notional amounts of US$1.85 billion and US$619mn, respectively. Management built
a strong organizational structure of internal controls and risk management, and
adopted various risk policies to address FX rate, market conditions, interest rates
and pulp prices, with management establishing independent committees, approvals
and reporting lines. In our view, CROIC and ROE should continue below the cost of
equity until 2019, as the increase in the asset base and financial expenses should
partly offset the increase in EBITDA.
Fibria – Financial
Poor Returns and Increasing Debt Ratios
Note: 1. Cash ROIC = (EBIT - t - WK change) / (Total debt + Equity + Minority Interest)
Fibria Key Ratios
Leverage Should Exceed 5.0x ND/EBITDA in 2017
28
KEY RATIOS 2011 2012 2013 2014 2015 2016E 2017E 2018E
FCF Yield -17% 8.7% 4.7% 1.6% 8.2% -30% -25% 6.7%
CROIC1 1% 4% 8% 8% 14% 4% 1% 4%
Working Capital/Sales 32% 25% 16% 16% 14% 19% 21% 19%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2013 2014 2015 2016 2017 2018 2019 2020

Fibria’s earnings growth has the same lack of predictability as other pulp producers,
who all follow the cycle of pulp prices and FX rates. Nonetheless, management has
ambitious plans for the company, as evidenced by the commissioning of the H2
project, the acquisition of Macuco’s port terminal in Santos and the developments
in logistics, eucalyptus genetics and projects in non-pulp business.
Management has not provided guidance on potential results and estimated costs of
the new developments. Thus, we estimate Fibria’s earnings to continue following the
changes in pulp prices and the BRL/USD, and conservatively have not included their
potential NPV in our model. Nonetheless, we acknowledge these initiatives are
upside risks to valuations.
In the short term, cash flows should continue suffering from an above-average
discount to BEKP list prices (29% vs. 23% as usual), the capex associated with the
construction of Horizonte 2 and the stronger BRL (our macroeconomic team
forecasts a 2017 year end FX rate of R$3.0/USD). Looking forward, earnings growth
should come from the start-up of Horizonte 2 in late 2017 (in our model, H2 will
increase EBITDA by circa 45% in 2018), adding 1.95 million tons of annual capacity
and lowering consolidated cash costs through shorter forest-mill distance and the
sale of energy surplus.
In addition, management may close opportunistic deals, like the purchase of third-
party wood. Fibria is taking advantage of the very low prices of wood in Brazil and
signed a five-year purchase agreement for deliveries of FSC certified eucalyptus
planned for 2018-2022, locking-in attractive prices and lowering cash-costs in the
future. Such strategy preserves its forestry reserves, guarantees wood supply if
drought or pests affect specific regions during the growing cycle, and increases the
possibilities of new fiber mix. We are following management’s guidance that third-
party wood should account for 33% of Fibria’s consolidated wood requirements in
2017 and fall to 28% in 2020.
Fibria – Growth
Growing Earnings in a Cyclical Industry
Fibria’s Growth Initiatives
Pulp Volumes and Fibria’s Discount to List Prices (FOEX Europe)
29
Identification of
promising
technologies
Identification
of potential
technological
partners
Negotiation
withs elected
technological
partners
Agreements
with partners
in product
application
Pilot
investments
Commercial
Investments
PYROLISIS
LIGNIN Ongoing
negotiations
Several partners
already
collaborating
-
NANOCELLULOSE
Several partners
already
collaborating
-
BIOCOMPOSITES
Ongoing
investigation
- - - -
20%
22%
24%
26%
28%
30%
0
2,000
4,000
6,000
8,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Th.Tonnes
Pulp Volumes (LHS) Discount (RHS)

We think that Fibria’s stock will become out of favor sometime during 2017. Although the stock fell 57% since the peak achieved on September 2015, forward consensus
valuations have bounced back and we see room for downward revisions, as analysts revisit BRL and pulp prices estimates. Investors seem pessimistic about the outlook for
Brazilian exporters, which we agree is bleak considering the currency mismatch – costs and operating expenses in BRL, revenues in hard currency and the stronger BRL
estimated by our economic analysts. There are no immediate catalysts and the stock should trade range bound as Fibria’s Horizonte 2 project starts amid falling pulp
prices. The project has been consuming billions in cash, deteriorating the balance sheet and pressuring debt covenants, with start-up planned for late 2017. Further news
related to the start-up of APP’s OKI project and price hikes should drive the stock in the near term.
The stock has a lot of visibility, covered by 17 brokerage houses and with average daily volume of R$60mn. Fibria’s results in the first half of 2016 showed 11% higher
revenues and flat growth in EBITDA, a direct effect of the slowdown in pulp prices and the appreciation of the BRL. The number of buy ratings on the Street have fallen from
64%to 47%, the lowest point in six months.
Fibria – Trading
Average
2017E Consensus Evolution (R$mn)Fibria EV/EBITDA 12 Months Forward
30
Short Interest (mn Shares)
4
5
6
7
8
9
10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
EV/EBITDA AVERAGE
-1,200
-1,000
-800
-600
-400
-200
0
200
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
12M 6M 3M Current*
0
2
4
6
8
10
12
14
16
18
20
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16

Our low-conviction estimates result in a fair value per share of R$24 (DCF based
on free cash flows-to-equity) and only 5% inflation-adjusted IRR, which seems
to provide no margin of safety when taking into account risk-free, inflation-linked
notes in Brazil, unpredictable growth, low ROIC and volatile cash flows. Thus, we
set an Equal Weight rating for FIBR3. We assume a long-term average BEKP price
(FOEX Europe) of US$701 in building our DCF and IRR models and continuing
appreciation of the BRL as determined by our macroeconomic team. Fibria’s 2018
FCF yield of 7% is below future interest rates, supporting our neutral stance on
the stock.
We have low conviction in the DCF and IRR methods due to the very
unpredictable nature of two key input variables -- global pulp prices and the FX
rate -- and we select a low exit multiple (P/FCF) when calculating the terminal
value, 12.0x. We prefer to utilize short-term, high-conviction valuation metrics,
such as trading multiples (FCF yields or P/CF). In all three pulp and paper stocks
that we are initiating coverage on, we pick 2018 FCF yield as near-term cash flows
are impacted by their expansion projects: in the case of Fibria, the Horizonte 2
project should become fully operational in 2018.
We ran a sensitivity analysis and for every US$30 increase in our long-term HW
price assumption of US$701/ton, Fibria’s fair value per share increases by R$4.0
per share. Coeteris paribus, for every 20 cents in BRL depreciation in each year of
our forecasting period, our target price increases by R$6 per share. The stock’s
current price of R$23 makes it fairly valued, consistent with volatile CROIC, ROE
and FCFs.
Fibria – Valuation
Valuation Based on FCF Yield, Low Conviction DCF Model
Source: Brasil Plural Reserach
Every R$0.1 variation in BRL impacts EBITDA in 6.7%, while a US$30/t change in pulp prices
moves EBITDA by 10%
31
Avg. BRL 2017E
2.86 2.96 3.06 3.16 3.26
BHKP2017E
761 3,242 3,467 3,692 3,917 4,142
731 2,963 3,178 3,394 3,609 3,824
701 2,684 2,890 3,095 3,301 3,506
671 2,405 2,601 2,797 2,993 3,189
641 2,127 2,313 2,499 2,685 2,871
R$ million 2017E 2018E 2019E 2020E 2021E
EBITDA 3,095 4,455 5,424 5,937 6,220
(-) Capital expenditures (5,476) (2,500) (2,300) (2,404) (3,800)
(-) Change in Working Capital (93) (280) (142) (20) (20)
(-) Taxes - - - - (278)
(-) Net Financial Expenses (649) (838) (806) (717) (591)
(=) Free Cash Flow to Equity (3,123) 837 2,176 2,796 1,530
Equity Value 13,114
Shares Outstanding (Mn) 553.2
Curr. Mkt Cap 2017E 2018E 2019E 2020E 2021E Pepetuity
(12,553) (3,123) 837 2,176 2,796 1,530 18,274
Implied IRR, real = 5%

Fibria
Source: Company reports; Brasil Plural Research 32
Net revenues 5,854 6,174 6,917 7,084 10,081 9,851 9,696 11,917
Cost of Services 5,124 5,237 5,383 5,546 5,878 7,097 8,147 9,278
Gross Profit 730 937 1,535 1,538 4,202 2,754 1,549 2,639
Gross Margin 12.5% 15.2% 22.2% 21.7% 41.7% 28.0% 16.0% 22.1%
Total Operating Expenses 352 231 (176) (119) 678 1,206 1,102 1,212
Sales expenses 295 298 348 365 437 441 374 474
G&A Expenses 310 286 300 265 266 271 285 298
Tax Expenses - - - - - - - -
Other expenses (253) (354) (823) (749) (24) 468 418 414
Amortization of intangibles 0 1 - 1 (0) 26 26 26
Operating Income 378 706 1,710 1,657 3,524 1,548 447 1,427
Depreciation and Amortization 1,884 1,506 1,064 1,134 1,813 2,082 2,649 3,028
EBITDA 2,262 2,213 2,775 2,791 5,338 3,630 3,095 4,455
EBITDA Margin 38.6% 35.8% 40.1% 39.4% 52.9% 36.8% 31.9% 37.4%
Net Financial Income (1,869) (1,696) (2,054) (1,635) (3,685) 2,374 (230) (1,166)
Financial Income 217 168 111 134 222 285 95 27
Financial Expenses 2,086 1,864 2,165 1,769 3,907 (2,089) 325 1,193
Non-operational income 241 - - - - - - -
Pre-Tax Income (1,250) (990) (344) 22 (161) 3,922 217 261
Income Taxes 382 292 (354) 141 518 (1,333) (74) (89)
Minority Interest (5) (7) (9) (7) (15) 12 1 1
Net Income (873) (705) (706) 156 342 2,600 144 173
Net Margin -14.9% -11.4% -10.2% 2.2% 3.4% 26.4% 1.5% 1.5%
EPS (1.87) (1.27) (1.28) 0.28 0.62 4.70 0.26 0.31
EBITDA 2,262 2,213 2,775 2,791 5,338 3,630 3,095 4,455
(-) Change in working capital (178) 236 289 (136) (504) (538) (93) (280)
(-) CAPEX (2,899) (1,119) (1,287) (1,625) (2,389) (6,461) (5,476) (2,500)
(-) Taxes (4) (15) (423) (29) (76) - - -
FREE CASH FLOW TO FIRM (820) 1,315 1,354 1,001 2,369 (3,369) (2,474) 1,675
(-) Net financial expenses (731) (520) (694) (776) (298) (450) (649) (838)
FREE CASH FLOW TO EQUITY (1,551) 796 660 225 2,071 (3,819) (3,123) 837
(+) Increase in debt (409) (528) (755) (1,396) 4,937 3,000 2,500 -
(+) Other 2,243 (389) (857) (18) (3,518) - - -
(+) Capital increase - 1,344 - - - - - -
(-) Dividends (264) - - - (2,148) (650) (36) (87)
CHANGE IN CASH POSITION 19 1,223 (952) (1,189) 1,343 (1,469) (659) 751
Cash and equivalents 2,091 3,314 2,362 1,173 2,516 1,047 388 1,139

Fibria
Source: Company reports; Brasil Plural Research 33
Current Assets 5,296 6,246 4,904 3,261 5,461 4,231 3,828 5,034
Cash and Eqiuv. 2,091 3,314 2,362 1,173 2,516 1,047 388 1,139
Accounts receivable 945 755 382 538 742 739 727 894
Inventories 1,179 1,183 1,266 1,239 1,571 1,814 2,082 2,371
Tax credits 328 209 201 163 462 462 462 462
Long-Term Assets 2,711 2,641 3,014 4,740 5,782 4,448 4,375 4,286
Gross PPE 18,249 18,331 18,461 17,527 18,407 24,868 30,344 32,844
Net PP&E 11,841 11,175 10,727 9,253 9,433 13,839 16,692 16,191
Investments 3,272 3,366 3,470 3,788 4,253 4,253 4,253 4,253
Intangible 4,809 4,717 4,634 4,552 4,506 4,479 4,453 4,427
Total Assets 27,929 28,145 26,750 25,594 29,434 31,250 33,601 34,191
Short-term debt 1,256 1,192 3,079 1,151 1,376 1,376 1,376 1,376
Suppliers 374 436 587 593 668 789 905 1,031
Taxes 53 41 56 56 564 118 136 155
Provisions - 470 470 - - - - -
Dividends 2 2 2 39 86 86 86 86
Other 142 205 125 125 90 90 90 90
Long term debt 10,358 9,894 7,252 7,784 12,497 12,673 14,754 15,082
Other 969 500 430 474 524 524 524 524
Provisions 102 105 129 622 642 642 642 642
Minority Interest 29 37 46 52 63 51 51 50

Macroeconomics Assumptions
Note 1: Europe Reference 34
2014 2015 2016E 2017E 2018E 2019E 2020E 2021E
GDP 0.1% -3.8% -3.1% 1.5% 2.1% 2.5% 3.0% 3.0%
IPCA 6.4% 10.7% 6.9% 5.1% 4.5% 4.5% 4.5% 4.5%
BRL/USD (avg) 2.36 3.33 3.46 3.06 3.04 3.13 3.24 3.35
BRL/USD (eop) 2.66 3.96 3.10 3.00 3.08 3.18 3.29 3.41
TJLP 5.0% 7.0% 7.5% 7.5% 7.0% 7.0% 7.0% 7.0%
SELIC (avg) 11.0% 13.6% 14.2% 11.4% 8.8% 8.5% 8.0% 8.0%
BHKP (US$/t)1
745 784 707 701 701 701 701 701

Appendix
Global Trading Comps (as of October 20th)
35Source: Bloomberg, Brasil Plural Research; | Note: * Ratings and target prices for the companies in the unshaded area
are consensus data provided for informational, comparative purposes only and should not be construed as a rating
recommendation determined by Brasil Plural or the analyst team.
Company Ticker Rating* Price FX
Real
12M TP* Upside
Mkt Cap
(US$mn)
EV/EBITDA P/E FCF Yield %
IRR 16E 17E 16E 17E 16E 17E
Suzano SUZB 5 BZ OW 10.1 BRL 12% 15.0 49% 3,543 5.1 6.1 3.3 10.0 10.9% 5.9%
Klabin KLBN11 BZ OW 16.1 BRL 9% 21.0 30% 5,584 11.9 8.7 5.1 15.6 -3.5% 9.8%
Fibria FIBR3 BZ EW 22.7 BRL 5% 24.0 6% 3,982 7.0 9.1 4.8 n.m -30.3% -24.9%
CMPC CMPC CI EW 1,367 CLP 1,605 17% 5,124 8.1 7.8 21.1 18.2 4.0% 3.7%
Empresas COPEC COPEC CI EW 6,262 CLP 6,813 9% 12,208 9.1 8.6 19.9 19.2 4.0% 6.2%
LatAm Average 5,354 8.2 8.0 10.8 15.8 -3.0% 0.1%
Stora Enso STERV FH OW 8.1 EUR 8.7 8% 7,179 6.8 6.7 12.2 10.8 6.7% 7.3%
UPM-Kymmeme UPM1V FH EW 19.2 EUR 19.1 0% 11,210 7.3 7.5 13.0 13.3 9.9% 9.3%
Smurfit Kappa SKG ID OW 20.4 EUR 26.5 30% 5,281 5.8 5.7 10.0 9.3 8.9% 11.2%
Holmen AB HOLMB SS EW 312 SEK 295 -5% 2,981 10.1 9.8 17.1 16.7 6.0% 6.7%
Svenska Cellulosa SCAB SS OW 256 SEK 295 15% 20,374 11.0 10.1 19.9 18.2 1.4% 4.0%
Metsa Board METSB FH OW 5.1 EUR 5.7 12% 2,021 9.0 7.0 17.9 12.0 0.6% 9.3%
Europe Average 6,230 8.3 7.8 15.0 13.4 5.6% 8.0%
Graphic Packaging GPK US OW 13.4 USD 15.8 19% 4,267 7.8 7.5 17.0 15.4 8.6% 10.0%
International Paper IP US EW 47.2 USD 50.5 7% 19,401 7.6 6.9 13.5 12.2 5.2% 8.0%
WestRock WRK US OW 46.9 USD 53.1 13% 11,798 7.3 7.0 18.4 15.9 8.6% 9.4%
Packaging Corp. of America PKG US OW 81.1 USD 85.7 6% 7,645 8.4 7.8 16.8 15.3 7.4% 7.9%
Sonoco Products SON US EW 51.1 USD 50.3 -1% 5,117 9.2 8.9 18.8 17.6 5.7% 6.0%
Resolute Forest RFP US EW 4.7 USD 5.1 9% 416 3.9 4.0 n.m n.m -32.7% -13.8%
Domtar UFS US EW 37.1 USD 41.1 11% 2,322 4.9 4.7 12.4 11.5 7.4% 12.6%
Potlatch Corp PCH US OW 39.4 USD 40.7 3% 1,594 17.6 15.3 n.m 26.2 5.0% 6.0%
Bemis Co BMS US EW 50.5 USD 52.4 4% 4,779 10.2 9.6 18.6 16.7 5.4% 5.6%
Weyerhaeuser WY US OW 31.5 USD 35.7 13% 23,585 18.0 15.2 n.m 24.9 6.5% 5.8%
Rayonier RYN US OW 26.1 USD 27.2 4% 3,204 17.1 17.7 n.m n.m 2.6% 4.5%
North America Average 4,779 10.2 9.5 16.5 17.3 2.7% 5.6%
Mondi PLC MNDI LN OW 1,621 GBp 1,773 9% 9,656 7.1 6.9 13.0 12.4 7.5% 8.6%
Sappi Ltd SAP SJ OW 7,714 ZAr 7,730 0% 3,001 5.6 5.6 9.7 9.3 10.5% 9.8%
South Africa Average 6,329 6.3 6.2 11.4 10.8 9.0% 9.2%
Oji Holdings 3861 JT OW 420 JPY 473 13% 4,099 7.4 7.4 16.7 11.2 15.6% 12.4%
Shandong Sun Paper 002078 CH OW 7.0 CNY 8.0 14% 2,646 9.3 6.7 17.4 12.3 n.m. n.m.
Lee & Man Paper 2314 HK OW 6.1 HKD 7.3 21% 3,553 8.6 7.7 9.6 8.5 0.0% 6.3%
Nine Dragons Paper 2689 HK OW 6.7 HKD 8.3 23% 4,050 8.7 7.7 12.8 10.9 7.3% 6.4%
Asia Average 3,802 8.5 7.4 14.1 10.7 7.6% 8.4%

Whenever you purchase a large
amount of future earnings power for
a low price, you have made a good
investment. The only way to
accomplish this is to buy when
others are selling. Investors often
struggle with this concept; it is not
easy to act contrary to popular
opinion
Appendix: Investment Methodology
We grouped important factors widely used by the legends of stock investing (Ben Graham, Warren Buffett and Seth
Klarman, among others) into five main investment principles that have proved timeless: Business (earnings visibility,
low volatility in business, competitive advantages, and corporate governance); Financial (CROIC, solid free cash flows,
and dividends/share buybacks); Growth (insulation from macroeconomics, structural demand/new markets, and
consolidation opportunities); Trading (news flow, short-term results, and “out of favor” status); and Valuation (FCF
multiples, implied IRR, DCF target price and trading comps – which frame the margin of safety requirement). Each
stock is scored differently on each principle. In general, we require a high margin of safety for an Overweight
recommendation if the company has weak scores in Business, Financial or Growth principles.
36
(John Templeton)
Business
Financial Growth
Trading
Valuation
MARGIN
OF SAFETY

Disclosure
GENERAL DISCLAIMER
This report has been produced by the research department (“Brasil Plural Research”) of Brasil Plural Corretora de Câmbio, Títulos
e Valores Mobiliários S.A. (“BRASIL PLURAL CCTVM”). BRASIL PLURAL is a brand name of BRASIL PLURAL CCTVM.
This report may not be reproduced, retransmitted, displayed or re-published to any other person, in whole or in part, for any
purpose, without the prior written consent of BRASIL PLURAL CCTVM, which consent may be sought by contacting the principal
analyst, who is going to be responsible for obtaining the Control Room´s approval. BRASIL PLURAL CCTVM accepts no liability
whatsoever for the actions of third parties in this respect.
This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report is
not tailored to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to
a single recipient. This research report is not guaranteed to be acomplete statement or summary of any securities, markets, reports
or developments referred to in this research report. Neither BRASIL PLURAL CCTVM nor any of its directors, officers, employees
or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion contained in this
research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from
the use of this research report.
BRASIL PLURAL CCTVM may rely on information barriers, such as “Chinese Walls” to control the flow of information within the
areas, units, divisions, groups, or affiliates of BRASIL PLURAL CCTVM.
Investing in any of the non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may
present certain risks. Non-US securities mentioned, recommended, offered, or sold by Brasil Plural CCTVM or its affiliates are not
insured by the Federal Deposit Insurance Corporation and are subject to investment risks, including the possible loss of the entire
principal amount invested. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the
U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited.
Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect
within the United States.
The value of any investment or income from any securities or related financial instruments discussed in this research report
denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse
effect on the value of or income from such securities or related financial instruments.
Past performance is not a guarantee of future results and no representation or warranty, express or implied, is made regarding
future performance of any security mentioned in this report. Income from investments may fluctuate. The price or value of the
investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors.
Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the
environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts,
assumptions and valuation methodology used herein.
The locally listed shares of Brazilian companies may only be purchased by investors outside of Brazil who are “eligible investors”
within the meaning of applicable laws and regulations.
STOCK RATINGS
Ratings
(i)
Definition
(ii)
Coverage
(iii)
Banking Relationship
(iv)
Overweight
Overweight stocks are expected to have a total return of
at least 15% and are the most attractive stocks within the
industry.
37.68 3.85
Equal Weight
Equal weight stocks are expected to remain flat or increase in
value and are less attractive than Overweight stocks.
39.13 11.11
Underweight
Underweight stocks are the least attractive stocks within the
industry.
23.19 12.50
(i) For disclosure purpose only, in accordance with FINRA requirements, we include the category headings of BUY, HOLD and SELL
alongside our ratings of Overweight, Equal Weight and Underweight, respectively. Overweight, Equal Weight and Underweight
are not the equivalent of BUY, HOLD and SELL but represent recommended relative weighting.
(ii) Investment ratings reflect the analyst’s assessment of a stock’s absolute total return and its attractiveness relative to other
stocks within the industry. The Industry is comprised of stocks covered by a single analyst or two or more analysts sharing a
common segment, geographic region or other classification(s). The industries we cover are: 1) Banking and Financial Services;
2) Basic Materials (Steel & Mining and Pulp & Paper); 3) Consumer Goods, Retail and Food & Beverage; 4) Healthcare and
Pulp and Paper | Sowing the Seeds of Value
October 21, 2016
Sowing the Seeds of Value Brasil Plural Equity Research | 38

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