Air Link IPO_Subscribe till PkR80sh, (AKD Daily, Aug 25, 2021)
AKD Daily
Air Link IPO: Subscribe till PkR80/sh
- Air Link Communication Limited has filed intention for a listing on the PSX, with book building scheduled to take place on 30th Aug’21 and 31st Aug’21. The offering includes new shares issuance raising PkR3.9bn while OFS component is worth PkR1.9bn, at a base price of PkR65/sh with the cumulative amount at PkR5.8bn— the largest IPO in Pakistan’s history.
- The company is one of the leading and largest distributors of mobile phones in Pakistan with a nationwide distribution network linked with 1,000+ wholesalers and 4,000+ retailers. The company set up state of the art mobile assembling facility having production capacity of more than 400K units/month and has already commenced operations since April, 21 with management expecting 100% utilization to be achieved till Dec’21.
- The company has non-exclusive distribution agreements with leading mobile phone brands like Samsung, Techno, Huawei, TCL and Xiaomi. The company also has entered into an agreement with MP (Apple Authorized Distributor for Pakistan) for distribution of products procured from MP in Pakistan.
- That said, non-exclusive distribution agreements, requiring annual renewals, exposes the company to unilateral termination risks. Additionally, aggressive penetration in the market could result in built-up of receivables causing cash flow issues to re-emerge.
- The company expects 3yr CAGR in earnings of 25% (from FY22) with avg. 3y EPS at PkR14.6. However, given the risks highlighted above to the earnings outlook, we apply a 20% discount to earnings. As such, at a base price, the stock trades at a P/E of 5.5x. However, another 20% discount is applied given possible conversion of TFCs into shares in the near term. Hence, relative to other players in consumer electronics, we advise to Subscribe till PkR80/sh.
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