Masterplast - In Line Results, Outlook Remains Sound Despite Slowing Hungarian Construction

Masterplast -  Instant Earnings Comment

Recommendation:  Accumulate (unch.)

Target price (12M): Under revision

 

• Masterplast reported revenues remained strong in the seasonally weaker Q4, up by 6.5% on Hungarian and Romanian markets. In the latter segment, Q4 showed an improved picture on the back of govt subsidies in construction. As a result, Masterplast’s Romanian sales were up by 13.7%. In Hungary, the positive mood in construction continued in the last quarter of 2019 but lost some steam in terms of new construction, partially due to labor shortage. Together with Ukraine, these three segments compensated for weaker sales in Poland, Croatia.
• On a product breakdown, Thermal insulation systems and dry construction materials were the main driver of growth.
• EBITDA margin also improved y-o-y to 5.1% in the last quarter, pushing 2019 overall margin up to 6.8% (vs. 6.2% in 2018). The material improvement was attributed to lower depreciation and other operating expenses, while change in self-manufactured inventories also contributed to the EBITDA.
• The Company said it may pay out up to 50% of its net profit during Investor day, which would translate to EUR 0.16 per share or 7.5% yield.
• The Company also issued HUF 6 bln of bonds in the frame of the Growth Bond Program announced by the NBH to refinance existing loans. We believe the Company could cut its interest expense by this measure to the tune of 100 bps. This would result in a HUF 21.3 per share increase in fair value in our view.
• Masterplast met all its target for 2019 and we expect 2020 to remain strong as construction projects were delayed to this year. On the Hungarian market, we expect a gradual slowdown, nevertheless the Company is prepared for that. The main risk stems from external shocks e.g. more permanent global downturn or material interest rate hikes (we see less chance for the latter) as the company is highly leveraged at the moment.