Amreli Steel Limited - ASTL: Growing with fortitude; initiate with Buy
- We initiate coverage on Amreli Steels Ltd (ASTL), the leading manufacturer of rebars in Pakistan, with a Buy rating and a TP of PkR85/sh (32% total return). Timely expansion amidst an infrastructure boom is expected to double sales in 3yrs with profits to grow even quicker on tax breaks (100% equity-financed new capacity).
- ASTL has superior product quality and prized brand equity in Pakistan, which allows premium pricing; while 30% RD on import of rebars (upped from 15% recently) thwarts Chinese competition, in our view. ASTL’s GMs have more than doubled in the last 5yrs to 22.5% in FY16; we see these averaging 20% across next 5yrs.
- ASTL trades at a FY17F P/E of 13.5x, but this compresses to 8.4/6.9x in FY18/19F as growth kicks in. This can be complemented by dividends, where we expect ASTL to continue payouts in future. Positive surprises can emanate from CPEC projects where, being a premium steel manufacturer, ASTL is closely involved.
Amreli Steels Limited is a Pakistan-based steel manufacturing company. The Company is engaged in the manufacture and sale of steel bars and billets. The Company offers a range of steel bars for all construction needs.
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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