PAEL: Pricey play for a cyclical comeback, (AKD Daily, Sep 08, 2020)
AKD Daily
PAEL: Pricey play for a cyclical comeback
- We revise earnings expectations for our forecast horizon incorporating a slightly better demand ‘bounce back” for both appliances and power divisions, on the back of secular catalysts: 1) residential construction uptick driving sales of power distribution equipment and 2) Panasonic strategic partnership (over 12-18months) including technology sharing.
- PAEL reported a 1HCY20 NLAT of PKR425.8mn (LPS:PkR0.9/sh) where the drastic loss in 1QCY20 was not effectively countered by 2QCY20 profits (NPAT of PkR106mn, EPS of PkR0.19/sh) rounding out what is usually the strong earnings season witnessed by the firm (1HCY period constitutes 5yr average ~54%/82.5% of net sales/NPAT)
- Amongst the two divisions, 1HCY20 saw 11%/15%YoY rise in power division/appliances gross sales translating into 14%YoY rise in gross sales, while and input cost inflation is the reason behind weak operational performance and inability to preserve margins for appliance division during 1HCY20
- For CY20E, following the spillovers of COVID-19 and disruption during the peak summer appliance sales season, and relatively dampened margin profile for 1HCY20, we constrain our earnings outlook for the firm, where weak margins (GM for CY20 expected at 21.1%) pull profitability close to being in the red
- The stock has performed 47.2%CYTD where expectations seem to have outpaced earnings drastically outpacing its CY12 P/E peak of 18.2x, before the firm’s last earnings upcycle (CY12-16), fading out over the period. This pre-upcycle valuation momentum keeps us on the sideline for now, where our revised TP of Pk37.7/sh implies a Neutral stance.
AKD Research
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