PAEL: Primed for a rebound
- Terse market conditions have been particularly unkind to the consumer durables space, where the outlook on consumer demand and drying-up of power spending crystalizes dampeners for PAEL.
- Correcting ~49%CYTD, PAEL's valuation set looks enticing enough to generate investor interest, where despite rationalizing our growth assumptions for CY18-21F earnings, accommodating PkR weakness and rising cost of borrowing, the stock offers 36.5% upside at current levels.
- Threats to pricing power in a challenging macro backdrop, accompanied by slow-down in power sector investments from public sector avenues in the same, drive down our GM/EBITDA margin expectations by ~180bps with CY18-21F averages at 25.2/15.0% vs. 27.4/15.9% previously. Profitability has resultantly been lowered by ~30% over our forecast horizon
- That said, even after accommodating a higher risk free rate, raised cost of borrowing, and extended working capital cycle (from new product initiatives amongst general demand weakening) the stock maintains an FCFE based TP of PkR31.5/sh, trading at CY18/19F P/Es of 5.6/4.7x.
- We think room for further upside exists in power division demand, particularly from internationally financed and privately run housing/real-estate demand for T&D equipment, which could deliver in the form of earnings surprises.
Pak Elektron Limited. Pak Elektron Limited is engaged in manufacturing and sale of electrical capital goods and domestic appliances. The Company operates through two segments: Power Division and Appliances Division. The Power Division is engaged in manufacturing and distribution of transformers, switchgears, energy meters, power transformers, construction of grid stations and electrification works. The Appliances Division is engaged in manufacturing, assembling and distribution of refrigerators, deep freezers, air conditioners, microwave ovens, washing machines and other home appliances. It offers services to power utilities, industries, individual customers, housing and commercial projects. Its engineering, procurement and construction (EPC) contracting division delivers custom designed and built high voltage and extra high voltage grid stations, electrification of housing projects and industrial parks. The Company's subsidiary is PEL Marketing (Private) Limited.
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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