JKSB Corporate Update_Alumex PLC (ALUM)_August 2016
Investment Considerations:
Strong Outlook: The Rise in Commercial & Residential Property Development
The strong demand from the commercial building segment in Sri Lanka has helped the aluminium extrusions industry to experience rapid growth over the last 3 years and we expect this trend to remain unchanged. In addition to this, we are also anticipating strong growth in the residential housing industry and we expect ALUM to tap into this market with its new product range under the 'Lumin' brand. Moreover, the Mega polis development project rollout and the re-launch of the Colombo Port City project will enhance the long term growth of the construction industry with a favourable impact on the aluminium extrusions industry.
Improved Affordability due to Lower Aluminium Prices (vs. Substitutes)
The decline in aluminium prices in the global commodity market has caused the suppliers of raw materials to reduce their premiums to remain competitive. This has caused a significant decline in raw material costs for aluminium extrusions and as a result, the manufacturers of extrusions are in a position to offer more attractive prices than in the past. We are confident that this advantage will enable aluminium extrusions to capture market share vs. conventional substitutes such as wood which has been widely used in the Sri Lankan housing industry.
Inclusion in the BOI Negative List: An Advantage to Local Manufactures (vs. Imports)
The local manufacturers are currently protected with an import tariff differential of approximately 30% and the addition of aluminium extrusions to the BOI negative list in 2016, will give the local manufactures a cost advantage vs. imports. Considering the price competitive nature of aluminium extrusions, we are confident that local manufacturers will be able to retain their market shares (vs. Imports). With its strong brand reputation and distribution channels, we expect ALUM to maintain its position as the market leader in Sri Lanka.
Attractive Valuations: High Dividend Yield & Significant Discount to the Market P/E
Our earnings projection for FY17E translates to a forward P/E of 8.3x for ALUM and this implies that ALUM will be trading at a discount of 22% to the market (FY17E P/E of 10.7x). Furthermore, ALUM's current dividend yield of 6.3% YoY is significantly greater than the market’s average dividend yield of 2.7%. Considering ALUM's growth outlook, we believe that ALUM is significantly undervalued at the current trading price. BUY
•JKSB is one of 15 founding members of the Colombo Stock Exchange with roots in share trading dating back to 1896, and is a subsidiary of John Keells Holdings PLC (JKH), the largest listed entity on the Colombo Stock Exchange with a market capitalization of US$ 1.3bn.
•JKSB’s core client base is Foreign Institutional Investors, Local Institutions and HNWI’s
•JKSB has a co-branded Research tie up with CIMB and a Research Referral agreement with Credit Suisse, along with trade execution relationships with several other global and regional securities firms.
•JKSB’s trade execution partners include Credit Suisse, CIMB, Merrill Lynch, Exotix, Daiwa, Convergex, Deutsche Asia Securities and Morgan Stanley
•JKSB is a research contributor to Bloomberg on ‘KEEL’
•The JKSB Research Universe covers 72 stocks across 15 sectors, with most Research efforts focused on approximately 45 of the more liquid counters.
•The JKSB Universe constitutes 67% of total market cap and approximately 80% of turnover at the CSE.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.