PAEL_Power equipment led rebound imminent - BUY!, (AKD Daily, Jan 19, 2021)
AKD Daily
PAEL: Power equipment led rebound imminent - BUY!
- Terse macro conditions have handicapped PAEL’s consumer durables geared investment case long before COVID-19 led shutdowns materially disrupted operations, resulting in sharply divergent sales performance over the period (9MCY20 Appliance/Power sales moved +33.8/-14.7%YoY)
- While sticking to our base case appliances revenue growth of 15%YoY (raised from 10% in Sept’20) underpinned by a “return to normal” outlook for consumer confidence and consumer credit offtake due to low rates, we now find significant catalysts to accommodate a sustained uptick in power equipment revenue over our forecast horizon
- Encouraged by construction sector incentives on offer and the extension of the same beyond CY20, and a pipeline of large scale projects, we find significant room to upgrade our power distribution segment revenue growth to ~23% (from ~10% previously) for CY21 and ~10% for CY23-25, raising EPS by ~27% to PkR3.37/sh for the CY21 and ~30% on average over CY22-25
- We find comfort in PAEL’s diverse product mix, where upgrades may emerge after distribution collaboration with Panasonic while a ‘return to normal’ macro backdrop lends stability to our GM/EBITDA margin expectations (raised by ~100bps, CY21-23 avg. of 28%/17%)
- Core improvements to profitability allow us to look past recent working capital strains (CR at 1.76x for Sept’20 vs. 1.29x as of Dec’19 but well below CY16/17 highs), where additional debt load is unlikely to post significant strains on profitability. At current levels the stock trades at CY21/22F P/E of 11.8x/6.4x, offering D/Y of 3.6%/6.7%, where our TP of PkR48.1/sh implies ~23% upside to last close.
AKD Research
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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