MUGHAL: Steep correction provides handsome upside
- We maintain Buy rating on MUGHAL with a rolled-forward Jun’19 TP of PRs88/sh (previously PRs93/sh) which offers upside of 48%. We slightly trim our earnings estimates by 6% in FY19F, largely due to higher expected distribution costs (recent rise seen in 9M as recurring). Our new EPS estimate for FY18/FY19F is PRs5.04/8.74.
- Going forward, we have lowered our operating margins assumptions in light of rising distribution expenses. Although we expect GP margins to converge with that of ASTL, we highlight risk from new capacities in the medium term. MUGHAL offers a 3yr earnings CAGR of 58% but the growth will likely moderate beyond FY20F.
- The stock is currently trading at FY18F P/E of 11.8x but compresses drastically to 6.8x in FY19F. We expect 3yr EPS CAGR of 58% on the back of the addition of 40MW in its power supply and other cost-efficiencies. The price has reverted back to levels before the announcement of grid load expansion of 40MW, as if to discount the trigger.
Mughal Iron & Steel Industries Ltd. Mughal Iron & Steel Industries Limited is engaged in manufacturing and trading of mild steel products. The Company is engaged in producing steel in the long-rolled steel products, which has a capacity of 688,000 metric/tons of re-rolled steel per annum. The Company is engaged in multidimensional activities from making billets of mild steel, spring steel, deformed bar, re-bar, cold twisted rebar and a range of sections, such as I-beams, L-sections, C-section, H-beams and T-bar. The Company offers its products under various categories, including Smelting, such as Ferro Silicomanganese, Ferro Chrome and Ferro Silicon; Billet, such as Mild Carbon Billets, Spring Steels, Austentic Stainless Steel, Ferrite Stainless steels and Alloys Steels; Bars, including Deformed Bars, Re-inforcement Bars and Thermax Bars; Beams, including I Beams (Girders), Angle Section (L Section), T Bar (T section) and C Channel, and Grade and Specifications, including ASTM A 615 G-40 and ASTM A 321.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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