ASTL: The worst is over, better times yet to come!
- A year of transition both from a political and economic standpoint, FY19 turned out to be a rough year for cyclicals in general and long steel manufacturers in particular, with the profitability of listed players declining 60%YoY.
- A host of factors contributed to a broad based decline in earnings including i) massive 24% rupee depreciation pushing input costs higher, ii) 575bps interest rate hike burdening leveraged plays with higher finance cost and iii) weak demand adversely impacting pricing power.
- While the adjustment phase is largely over, we think the earnings cycle will take some time (i.e. quarter or so) before reversing its course, as the full impact of macro-adjustments seeps through the real economy.
- In this backdrop, we revisit our investment case for ASTL post release of FY19 annual accounts, modeling the impact of delay in demand and margin recovery and taxation measures into our estimates.
- We revise down our FY20/FY21/FY22F earnings estimates by 94/44/21% to PkR0.30/3.58/7.0/sh (vs. previously PkR5.0/6.43/8.89/sh). As a result, our rolled forward Jun’20 TP comes at PkR41/sh. (vs. previously PkR55/sh).
- ASTL has gained 63% from its 52-week low in Aug’19, where it now trades at an expensive forward FY20/FY21F PE of 84.1/7.91(x). While the stock offers 59.8% upside from our Jun’20 TP, weak earnings outlook in the near term may inhibit further price performance. We advocate for a long term investment horizon and call for buying on dips.
AKD Research
Amreli Steels Limited is a Pakistan-based steel manufacturing company. The Company is engaged in the manufacture and sale of steel bars and billets. The Company offers a range of steel bars for all construction needs.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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