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PAC - Valuation is not attractive

PAC is the leading player in the battery manufacturing industry, in a highly competitive market. However, PAC’s market share has remained stable for the last few years thanks to an effective distribution management system and long-standing brand name. Hence, we expect that earnings will grow at a compound annual growth rate (CAGR) of 12% in the next five years. For this reason, we believe that a forward P/E of 11.5x, which the market is applying for PAC’s peer group, is suitable. However, despite an 8% decline in the stock price recently, PAC stock is trading at a trailing P/E ratio of 18x, and we believe that this valuation is unjustified.

Our target price is VND 38,000 per share. This target price, coupled with a VND 2,500 cash dividend in the next 12 months, would yield a negative total return of -7% (calculated based on the closing price on 31^st October). Therefore, we come up with a REDUCE recommendation on PAC. However, we still maintain our view that the fundamental business of the company is good. Hence, we strongly recommend that investors can consider accumulating PAC at a more attractive price.