Pakistan Steel: Risks are overplayed, reiterate buy on ASTL
The domestic long steel sector lost 33.6% CYTD, with sentiments marred by numerous challenges including: 1) commerce division’s proposal to withdraw duty on steel products and 2) adverse budgetary measures (i.e. additional sales tax levy and reduction in developmental budget). Amongst major players, ASTL has seen steep correction (down 42.4%CYTD) on account of delayed materialization of its flagship Dhabeji expansion. With a change in macro-economic landscape, we have revised down our earnings estimates (FY19/FY20F: 6%/5%) for ASTL incorporating macro developments (interest rate hike and rupee depreciation) while adjusting for maintenance shut down. Consequently, our rolled forward (Jun’19) TP comes down to PkR 117/sh (previously at PkR135/sh). With regulatory protection remaining in place alongwith sector’s strong pricing power (as evident from last three price hikes post rupee devaluation, prices up 20% since Jan’18), we feel concerns regarding margin stability are unwarranted. Sector valuations have become increasingly appealing with ASTL trading at an attractive FY19F P/E of 5.15x (35% retracement since Dec’17). With protective measures duly in place along with strong earnings growth outlook (4yr forward NPAT CAGR of 18%), we reiterate our buy call on ASTL.
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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