NML :Headwinds are priced in, Buy! , (AKD Daily, Jun 09, 2020)
NML: Headwinds are priced in, Buy!
- Export-oriented sectors in general and textiles in particular face a double whammy of COVID-19, with both demand and supply disruptions making life difficult for them. Advance order book which was usually booked for 3-6 months is now reduced to a few days. New orders so far are mostly of PPE related fabric, which are both non-repetitive and low margin.
- In this backdrop, we revise down our FY20/FY21F earnings estimate for NML to PkR8.78/11.0 per sh (vs. PkR12.8/16.13 per sh previously), incorporating a steep upfront declines of 40%/30% in 4QFY20/1QFY21F exports and 60-90bps contraction in the margin at a gross level, reflecting lower realized prices and plant utilization amidst unprecedented weak demand.
- Portfolio earnings which historically extended the cushion to NML during the times of stress in core textile business also face structural and cyclical headwinds, with COVID-19 exacerbating the liquidity situation in power sector and swift easing by SBP leading to downward revision in payouts from MCB. Revision in core textile earnings and portfolio value result in a downward revision of our TP to PkR132.0 per sh (vs. PkR165.5 per sh previously)
- Despite the aforesaid challenges in the near to medium term, NML is relatively better positioned to weather the COVID crisis due to vertically integrated textile operations and diverse income stream from the portfolio companies.
- At last close, the stock is trading close to its portfolio value of PkR74 per sh (adjusted for a conglomerate discount of 30%), which means the market is completely discounting core textile operations, which we value at PkR40.7 per sh based on DCF valuation. With our revised rollover Jun’21 TP of 132.0 per sh, the stock offers 72.4% capital upside, Buy!
AKD Research
Nishat Mills is engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing, printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fiber and cloth, and to generate, accumulated, distribute and supply electricity.
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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