Taurus Research.2
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INSIGHT January 09, 2014 Construction & Materials TSL Research Akzo Nobel Pakistan Limited Earnings growth to remain robust! With 9MCY13 results showing sizeable improvement in profitability, the stage is set for the CY13 results to finish on a high. Despite subdued QoQ sales in 4q, we expect CY13 sales to rise by 14%. Higher gross margin due to stable oil prices will augment gross margins to 37% (CY12 gross margins of 32%), resulting in gross profits growing by 27%. Lower Admin expense (most likely due to absence of demerger expense) is projected to take operating profits up by 166%. We expect QoQ earnings of 4q to be on the lower side due to: 1) slowdown in Automotive sector especially in the passen‐ ger car segment due to lower seasonal demand and 2) decline in Other income (due to one‐off gain in the previous quarter). Even post dividend payout of PKR78.6/share in April, the scrip has continued to heav‐ ily outperform the market, rising by 275% vs KSE‐100 index appreciating by 43%. We maintain our Buy stance on the company after raising our sales volume assumption & TP roll forward. The script is currently trading at CY14 P/E of 9.8x and offers a divi‐ dend yield of 5%. With CY13 expected cash balance of ~PKR30/share and no leverage, the company can come up with a positive surprise on the payout front. CY13, a good year in the making! Akzo Nobel Pakistan Ltd. (AKZO) reported 9MCY13 net earnings of PKR457mn (EPS: PKR9.85), depicting a strong growth of 127% as compared to PKR201mn (EPS: PKR4.34) in the CPLY on the back of higher sales volumes and 69% rise in Other income (due to higher cash balance & one‐off gain). Gross margins during the 9MCY13 also improved to 37% from 32% in the CPLY. We expect 4QCY13 earnings to be on the lower side due to: 1) slowdown in Automotive sector especially in the passenger car segment due to lower seasonal demand 2) implica‐ tion of extra 2% sales tax on supply of paints in addition to 1% hike as announced in Fed‐ eral budget & 3) decline in Other income (due to one‐off gain in the previous quarter). Future Outlook Going forward in CY14, we are foreseeing growth in earnings on the basis of higher sales DISCLAIMER: The above information and advice is given in good faith, without any legal responsibility. Taurus Securities Limited or individuals con‐ nected with it may have used research material before publication and may have positions in or may be interested in the securities mentioned herein. Continued on page 2 Syed Asim Ali Zaidi [email protected] Direct: +92‐21‐35216403 AKZO PA BUY Stock price as at 08 Jan 138.2 Target price 163.4 Current upside/(downside) 18.3% Outstanding shares (mn) 46.4 Market Cap (PKRm) 6,418 Free float 24.2% 3M Avg. daily turnover (PKRm) 14.5 3M Avg. daily volume (m) 0.1 3M High 138.9 3M Low 77.5 Key Financials in PKRmn Year end CY12A CY13F CY14F CY15F Net sales 4,764 5,442 5,874 6,348 Cost of sales 3,193 3,451 3,485 3,730 Gross Profit 1,571 1,991 2,389 2,617 Operating profi t 243 648 882 934 Other income 316 452 151 158 Net Profit 365 545 654 689 Key Metrics EPS 7.87 11.74 14.08 14.82 DPS 78.60 6.00 7.50 8.50 BVPS 131.0 64.1 72.2 79.5 P/Ex 17.6 11.8 9.8 9.3 P/BVx 1.1 2.2 1.9 1.7 Dividend Yield 56.9% 4.3% 5.4% 6.2% Earnings growth N.M 49% 20% 5% ROA 5% 13% 15% 14% ROE 6% 18% 20% 19% Net Debt/Equity ‐75% ‐44% ‐47% ‐50% 20 60 100 140 180 Jan‐13 Mar‐13 May‐13 Jul‐13 Sep‐13 Nov‐13 Jan‐14 AKZO Rel. KSE‐100 Price performance PKR mn 3QCY13 4QCY13f QoQ CY12 CY13f YoY Net sales 1,302 1,276 -2% 4,764 5,442 14% Cost of Sales 812 796 -2% 3,193 3,451 8% Gross Profit 490 480 -2% 1,571 1,991 27% Operating Profit 195 140 -28% 243 648 166% Other income 147 27 -82% 316 452 43% EBIT 321 155 -52% 517 1,014 96% Financial charges 27 10 -64% 11 40 258% PBT 294 145 -51% 506 974 92% PAT 191 88 -54% 365 545 49% EPS 4.10 1.89 -54% 7.87 11.74 49% DPS - - - 78.60 6.00 -92% Source: Company Financials & TSL Research
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Transcript of Taurus Research.2
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INSIGHTJanuary09,2014
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AkzoNobelPakistanLimitedEarningsgrowthtoremainrobust!With9MCY13resultsshowingsizeable improvement inprofitability,thestage issetfortheCY13resultstofinishonahigh.DespitesubduedQoQsalesin4q,weexpectCY13salestoriseby14%.Highergrossmarginduetostableoilpriceswillaugmentgrossmarginsto37%(CY12grossmarginsof32%),resultingingrossprofitsgrowingby27%.LowerAdminexpense (most likelyduetoabsenceofdemergerexpense) isprojectedtotakeoperatingprofitsupby166%.WeexpectQoQearningsof4qtobeonthelowersidedueto:1)slowdowninAutomotivesectorespeciallyinthepassengercarsegmentduetolowerseasonaldemandand2)declineinOtherincome(duetooneoffgaininthepreviousquarter).EvenpostdividendpayoutofPKR78.6/shareinApril,thescriphascontinuedtoheavilyoutperformthemarket,risingby275%vsKSE100indexappreciatingby43%.WemaintainourBuystanceonthecompanyafterraisingoursalesvolumeassumption&TP roll forward.Thescript iscurrentlytradingatCY14P/Eof9.8xandoffersadividendyieldof5%.WithCY13expectedcashbalanceof~PKR30/shareandnoleverage,thecompanycancomeupwithapositivesurpriseonthepayoutfront.
CY13,agoodyearinthemaking!Akzo Nobel Pakistan Ltd. (AKZO) reported 9MCY13 net earnings of PKR457mn (EPS:PKR9.85),depictingastronggrowthof127%ascomparedtoPKR201mn(EPS:PKR4.34)in theCPLYon thebackofhighersalesvolumesand69% rise inOther income (due tohighercashbalance&oneoffgain).Grossmarginsduringthe9MCY13alsoimprovedto37%from32%intheCPLY.Weexpect4QCY13earningstobeonthe lowersidedueto:1)slowdown inAutomotivesectorespeciallyinthepassengercarsegmentduetolowerseasonaldemand2)implicationofextra2%salestaxonsupplyofpaintsinadditionto1%hikeasannouncedinFederalbudget&3)declineinOtherincome(duetooneoffgaininthepreviousquarter).FutureOutlookGoingforwardinCY14,weareforeseeinggrowthinearningsonthebasisofhighersales
DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnectedwithitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.
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[email protected]:+922135216403
AKZOPA BUYStockpriceas at08Jan 138.2Targetprice 163.4Currentupside/(downside) 18.3%Outstandingshares(mn) 46.4MarketCap(PKRm) 6,418Freefloat 24.2%3MAvg.dailyturnover(PKRm) 14.53MAvg.dailyvolume(m) 0.13MHigh 138.93MLow 77.5
KeyFinancials inPKRmnYearend CY12A CY13F CY14F CY15FNetsales 4,764 5,442 5,874 6,348Costofsales 3,193 3,451 3,485 3,730Gross Profit 1,571 1,991 2,389 2,617Operatingprofit 243 648 882 934Otherincome 316 452 151 158NetProfit 365 545 654 689
KeyMetricsEPS 7.87 11.74 14.08 14.82DPS 78.60 6.00 7.50 8.50BVPS 131.0 64.1 72.2 79.5P/Ex 17.6 11.8 9.8 9.3P/BVx 1.1 2.2 1.9 1.7DividendYield 56.9% 4.3% 5.4% 6.2%Earnings growth N.M 49% 20% 5%ROA 5% 13% 15% 14%ROE 6% 18% 20% 19%NetDebt/Equity 75% 44% 47% 50%
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PKRmn 3QCY13 4QCY13f QoQ CY12 CY13f YoYNet sales 1,302 1,276 -2% 4,764 5,442 14%
Cost of Sales 812 796 -2% 3,193 3,451 8%
Gross Profit 490 480 -2% 1,571 1,991 27%
Operating Profit 195 140 -28% 243 648 166%
Other income 147 27 -82% 316 452 43%
EBIT 321 155 -52% 517 1,014 96%
Financial charges 27 10 -64% 11 40 258%
PBT 294 145 -51% 506 974 92%PAT 191 88 -54% 365 545 49%
EPS 4.10 1.89 -54% 7.87 11.74 49%DPS - - - 78.60 6.00 -92%Source: Company Financials & TSL Research
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INSIGHT TSLResearch
volumesasthecompanyisfocusingon1)vehiclerefinishes&protectivecoatingstocompensate for theslowdown inautomotivesector (due tochanges ingovernmentpoliciespertainingtoreduceddutyonimportedhybridcarsandincreaseinsalestaxfortractors)2)capturingnewopportunitiesinthepowerandmaintenancesectorsinordertomitigatetherecenthike insalestaxby2% and3)positivemarketsentimentassociatedwiththenewlyelectedgovernmentandthesamewouldlikelyresultinimprovedbusinessclimateinthemediumtolongterm.Ouraboveestimatesarealsodulysupportedbythefollowingassumptions:1) Growthinautomobilesector(implementationofADIPII)&localcementsales.2) Stablecrudeoilprices.AboutthecompanyAkzoNobelPakistanLimited(theCompany)wasincorporatedinAugust2011asapublicunlistedcompanyundertheCompaniesOrdinance,1984andwassubsequently listedon theKarachi, Lahore and Islamabad Stock Exchanges in July 2012. TheAkzoNobelGroupacquiredICI in2008bringingtogetherthe innovation, leadershipandexpertiseofbothcompanies.ThepaintsbusinessofICIwasdemergedwitheffectfromJuly2011andtransferredtoandvestedinAkzoNobelPakistanLimited.Thecompanyisprimarilyinvolvedinthemanufacturingofpaintsandtradingofspecialtychemicals with household brand names such as DissolvineChelate chemistry (usage:processingphotos,cleaningdetergents,agriculturalproducts&preservingfoods),Dulux,Sikkens(Automobileindustry)GliddenMagikandPaintex.Theregisteredofficeandfactory of the company located at Ferozepur Road, Lahore. ICI Omicron B.V. (a whollyownedsubsidiaryofAkzoNobelN.V.)holds75.81%ofthesharecapitalofthecompany.Thecompanyhas46.4mnsharesoutstanding.
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