PAEL: Economic Tailwinds to Propel Growth (Detailed Report)
Pak Elektron Limited (PAEL) is a market leader in electrical equipment segment where it dominates in the market of transmission machinery such as transformers, switchgears, and energy meters and is gaining traction in EPC contracts. Furthermore, the company is also benefiting from its presence in growing white goods segments (second largest market share in refrigerators segment) accounting for nearly half of its top line. We believe PAEL is in a sweet spot with strong presence in growing segments namely 1) Power transmission and 2) consumer electronics where heavy potential investment from GoP in energy sector and expected macro tailwinds would support overall revenues for the company. We thus expect the company’s bottom line to grow at a 5 year CAGR of 21%. PAEL is currently trading at a cheap forward multiple of 6.6x/5.6x for CY16/17 (Post right), our DCF based Dec-16 PT of PKR 83/share (adjusted for rights) offers a significant upside of 37% from its post right value of PKR 61.1/share (from LDCP of 66.4). BUY!
Investment Case: Our strong conviction on the company emanates from (i) sizeable investments pouring into power sector in years ahead, (ii) GoP's robust infrastructure spending along with higher demand for housing schemes, (iii) depressed commodity prices to support growth in margins and, (iv) improving economic indicators to shore up white products sales.
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.
Elixir Securities Pakistan is a Corporate Member of the Pakistan Stock Exchange & Pakistan Mercantile Exchange and is one of the leading securities brokerage & investment banking firms in Pakistan, established since 1994. Our principal business activities include all aspects of Pakistan’s Capital Markets covering Securities Brokerage (Equities, Fixed Income and Commodities), Corporate Finance & Capital Markets Advisory (M&A, ECM, DCM) and Investment Research (Economics & Securities). We are one of the most active & aggressive Broker-Dealers in Pakistan executing trades for most of the Top 20 Global Brokers with unmatched corporate access credentials and have successfully advised and closed on some landmark ECM transactions in the history of Pakistan including the largest deal in frontier Asia (USD 1.02 billion). Our Clients include foreign and domestic financial institutions (Banks, Asset Managers, Insurance Companies, Pension Funds) corporates, HNWI’s and retail investors. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media.
Elixir Securities Pakistan is the proud recipient of many awards & recognitions including AsiaMoney’s Brokers Poll 2017, FinanceAsia’s Pakistan Best Investment Bank and Best Broker 2017, The Asset’s Best Brokerage House in Pakistan 2016, Asiamoney’s “Best Domestic Equity House 2015 in Pakistan”, The Asset Triple A Country Awards 2015 - Pakistan “Deal of the Year” and “Deal of the Year-Highly Commended”, CFA Society of Pakistan Awards for Year 2015 “Best Research Analyst (1st Rank), CFA Society of Pakistan Awards for Year 2014 “Best Research Analyst (1st Rank)”, “Best Trader” 2nd Runner-up (3rd Rank), The Asset Triple A Country Awards 2014’s “Best Deal in Pakistan” and Capital Finance International’s nomination for “Best Equity Research in Pakistan 2010”.
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