ISL: Competitive landscape beyond FY20; maintain Buy
- We revise down our FY19-21F earnings estimates for ISL by 6.5% on average with a new TP to PRs147/sh (rolled over to Jun’19), down 10% from PRs164/sh earlier (post-budget corporate tax changes), still offering an upside of 45% since the stock has corrected 12% in last one month.
- The decline in FY19/20 earnings is largely owed to soft international CRC margins (US$90/ton FYTD18) vs our initial estimate of US$105/ton. In addition, we foresee competition in the industry to intensify with a new entrant Siddiqsons (STPL) planning to add capacity of 200,000tpa by 2020.
- While we remain comfortable on demand in the next two years, beyond FY20 there is a risk of a supply glut amid new capacities and diminished pricing power with the expiry of antidumping duties. Considering FY19F P/E of 6.2x and 3yr EPS CAGR of 36%, we find valuations undemanding, even as ISL’s risk profile could gradually worsen hereon.
International Steels Limited is a producer of flat steel products. The Company manufactures cold rolled steel coils, galvanized coils and color coated steel. Its cold rolled steel is available in thicknesses ranging from 0.25 millimeter (mm) to 3.0 mm; galvanized steel is available in thicknesses of 0.25 mm to 2.0 mm, and color coated steel is available in thickness range of 0.20 to 1.50 mm. Its rolling capacity is 500,000 metric tons (MT). It produces approximately 400,000 MT of galvanized products. It produces color coated sheets on various substrates, including cold rolled, galvanized, galvalume, aluminum and stainless steel sheets. Its cold rolled steel offers applications, such as ceiling lights, tube lights, ceiling fans, oil drums, lube drums and motor cycle frame; galvanized steel has applications, such as packaging, furniture, washing machines, gas ovens and microwave ovens, and color coated steel offers applications, such as ice boxes, tubs, buckets and storage bins.
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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