Nishat Mills Limited - Discounted proxy to Pakistan; initiate with a Buy (Coverage Initiation)
- We initiate coverage on Nishat Mills Limited (NML), with a Buy* rating and a SoTP based TP of PkR151/share (upside: 32%). The textile business is valued at PkR33/share while the portfolio of group companies is worth PkR118/share, after applying a 30% holding company discount. NML trades at FY17F P/E of 6.9x, at a 29% discount to the market.
- After bottoming out in FY15, NML’s core textile dynamics are now on an uptick backed by cotton price stabilization and a tilt towards value addition underpinned by planned doubling of garment capacity to 14.4mn units by 2017. This should act as a trigger where we see core textile profits delivering a 56% CAGR across FY15-20F, with EPS CAGR projected at 13%.
- NML has arguably been a value trap over the last few years, but this is set to change. We point to (i) improving textile dynamics, (ii) rally in DGKC share price which is now NML’s most valuable holding, and (iii) better outlook for MCB given expected interest rate upcycle from 1QCY17. The group’s new ventures in Hospitality, Entertainment and Dairy – NML has exposure to all – also provide a hidden growth element.
Nishat Mills is engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing, printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fiber and cloth, and to generate, accumulated, distribute and supply electricity.
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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