PAEL_Multipliers come in all shapes & forms
We initiate coverage on Pak Elektron Ltd (PAEL PA) with a Buy rating having a Dec'18 TP of PkR51.70/sh. Rising consumer durable spending propagated by rapid urbanization and favorable demographics are slated to amplify White Goods purchases while distribution focused commercial energy CAPEX push power equipment demand. Both undergo upswings from existing but undisciplined infrastructure and consumer durable consumption patterns maintaining a long-term demand sweet-spot for PAEL. That said, we also highlight medium-term competitive pressures in the appliance segment and public-sector governance risks as weighing on earnings. Grounded in these, sturdy demand is forecasted with a 5-yr gross sales forward CAGR of 19.5% (vs. ~16% during CY12-17A). However, passing-on the high cost of directly imported materials (66% of total COGS) remains challenging in an environment where the currency is under pressure, translating into CY18-22F average GM of 27.4% vs. 30.4% during CY14-17A. Resulting NPAT growth (5-yr forward CAGR of 12.7%) postures for re-rating as the stock currently trades at a CY18/19F P/E of 6.3/5.1x and PEG ratio of ~0.26x. At current price level, the stock provides upside of 34.2%.
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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