ASTL_Improved fundamentals but valuations stretched, (AKD Daily, Aug 19, 2020)
AKD Daily
ASTL: Improved fundamentals but valuations stretched
We update our earnings estimates for ASTL, downward revising for FY20F (LPS: PkR3.64 vs. PkR2.63 previously) incorporating short term disruption due to COVID-19 while upward revising 16-24% over the remaining investment horizon (i.e. FY21-FY25F), accommodating sooner than expected recovery in demand following supportive policy backdrop and changes in macro assumptions (i.e. interest rate cuts).
Consequently, our revised rollover Jun’21 TP comes at PkR56 per sh, implying Neutral stance, with a capital upside of 12.6% from the last close.
In line with other cyclicals, ASTL rallied 121% from its YTD low in late Mar’20 on the back of supportive policy backdrop both in terms of macro (i.e. 625bps reduction in policy rate) and sector-specific (i.e. Construction package). The market has prematurely priced in nascent improvement in fundamentals, in our view, with the stock now trading at FY21/FY22F PE of 31.7/10.1 (x), leaving little upside from the current price level.
For 4QFY20, we expect ASTL to report a net loss of PkR341mn (LPS: PkR1.15) vs. a net loss of PkR191mn (LPS: PkR0.64) in 4QFY19 The earnings deterioration is primarily due to corona mandated closure of business for half of the quarter, leading to 61%YoY decline in topline. Margin at the gross level, however, is expected to normalize (GM: 9.6% in 4QFY20 vs. 5.9% in 4QFY19) due to one-offs recorded in SPLY. Cumulatively, the company is expected to record net loss of PkR1,029mn (LPS: PkR3.47) vs. a net profit of PkR33mn (EPS: PkR0.11), where volumetric decline (-8%YoY) and higher financing cost (+78%YoY) are key earnings dampener.
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