ASTL: Gearing up to expand its footprint
Amidst regulatory protection and robust steel demand, ASTL has announced its second phase of capacity expansion (via a BMR activity) where the company plans to expand its melting/rerolling capacity by 200k/270k tpa, taking its total melting/rolling capacity to 600k/750k tpa. While awaiting further details, we view the said development as value accretive with incremental average FY19-23F earning impact of PkR6.05/share, potentially translating into additional price impact of PkR37/share(not incorporated in our financial estimates) . Additionally we have also revised upward our FY19/FY20F earnings estimates to PkR11.62/12.79/share (+38%/+33%) on account of revision in volumetric assumptions (+45%/+46% in FY19F/FY20F). In this regard, strong growth in steel manufacturing (+25%YoY in 9MFY17) alongwith GoP's keen intent to push ahead with key infrastructure projects under the ambit of CPEC remain the key reasons for revision. Moreover, announcement of the second phase of expansion puts more weight behind our demand thesis. Consequently, our revised Dec'17 TP (ex-new expansion) goes up to PkR106/share (previously: PkR80/sh). Following 82% CYTD price performance, our revised TP offers 14% downside where we feel the expansion triggers have been played out (P/E expanded by 45% since Jan'17) justifying a Reduce stance.
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