Thall Limited: Margins likely to recover in 2H; maintain ‘Buy’
- We cut our earnings estimates for Thal Limited (THALL) by 19/14/11% over FY18/19/20E, post: (i) acknowledging margin pressure in engineering and paper sack segment, (ii) actual 1HFY18 results, and (iii) revised earnings estimates of INDU.
- Our liking for THALL remains unaltered and we reiterate a Buy with SOTP based TP of PKR723 (hinting at 49% upside). THALL provided direct exposure to growing auto sales of the country and Pakistan’s push to jack-up local coal-based production.
- THALL’s subsidiary Thal Boshuku plans on introducing additional parts and components in its product line (seat track assembly), while it’s energy sector projects are progressing at a decent pace and are likely to achieve COD by FY20/21.
- THALL reported below expected consolidated EPS of PKR9.35/sh in 2QFY18, down 70% YoY, mainly as a result of (i) absence of one-off gain of PKR18.3/sh, (ii) contraction in gross margins to 19.7% in 2QFY18, and (iii) slower than expected sales growth in engineering segment.
- Key downside risks include (i) delay in financial close of TNP, (ii) delay in commercial operations of SECMC, and (iii) spike in raw material cost.
Thal Limited. Thal Limited is engaged in the manufacture of jute goods, engineering goods, papersack and laminate sheets. The Company operates in three segments: Engineering; Building Materials and Allied Products, and Real estate management & others. The Engineering segment is engaged in the manufacturing of automotive parts. The Building material and allied products segment includes jute, papersack and laminate operations. The Real estate management & others segment includes the real estate management, trading and share registrar and management services. It is a supplier of wire harness products to various automobile original equipment manufacturers (OEMs) in Pakistan. It is engaged in the manufacturing of A. Twill Sacks, B. Twill Sacks, Coffee Sacks, Sugar Sacks, Heavy Cees, Light Cees, Hessian Cloth and Hessian Bags (ordinary/natural white). Its jute operations are located at Muzaffargarh, engineering operations at Karachi, papersack operations at Hub, and Gadoon and laminate operations at Hub.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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