Intermarket Pulse: ICI: Emerging consumer proxy; initiate with Buy
We initiate coverage on ICI Pakistan Ltd (ICI) with a Buy rating and a Jun’19 TP of PRs910/sh offering 19% potential upside. We expect a 3yr EPS CAGR of 16% led by the company’s foray into high-growth Consumer & Pharmaceutical ventures, which is supported by healthy cash flows from its legacy Soda Ash business.
ICI has achieved significant cost savings and profitability growth in its Soda Ash business. However, from here on, it will be the Life Sciences and Morinaga ventures which will not only drive earnings growth but also warrant premium valuations for ICI, given their growing share in overall profits.
Future triggers include commissioning of ICI’s 51% owned infant milk manufacturing facility due in 3QFY19 and stronger earnings trajectory given Soda Ash expansion. While the stock is trading at a FY19F P/E of 15.9x, we highlight (i) a PEG of 0.7x, and (ii) high growth businesses forming approximately 40% of ICI’s EBITDA by FY22F.
Co. is engaged in the manufacture and sale of pure terephtalic acid, polyester stable fiber, POY chips, soda ash, paints, specialty chemicals, sodium bicarbonate and polyurethane; formulation of agrochemicals; marketing of seeds, toll manufactured and imported pharmaceuticals and animal health products; and merchanting of general chemicals. Co. also acts as an indenting agent. Co., through its subsidiary ICI Pakistan PowerGen Limited, is engaged in generating, selling and supplying elecricity to industrial and other consumers.
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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