PTB - Wooden Exports to Drive Mid-term Growth
Phu Tai JSC is one of the few listed firms that specializes in stone and wood exploitation. During 2014-18, stone was on average its core business, accounting for 28.0% of revenue and 57.3% of gross profit. Stability in mining efficiency due to huge reserves and diversification of sales helped gross margin remain at ~33.1%. Stone consumption is levelling off but the long-term outlook remains positive given the ramp-up in infrastructure works and real estate supply, including residential, tourism & office projects. Ample reserves (53 mil m3, 13 quarries) and suitable strategies, including boosting exports (28.5% of sales) and better product mix, are expected to bring an average growth of 13% in production and gross profit in 2019-23.
Wood is witnessing a tremendous growth of 25.7% of which, exports made up 37.7%, 3.8 times higher than the country’s average. The US-China trade dispute will continue to push export orders to the US in the mid-term. Further growth should come from the EU market, especially the UK driven by the VPA/FLEGT and EVFTA agreements. The high rate of self-supply of legal raw materials with good traceability certified by FSC-CoC and increasing automation are the internal driving forces for growth. Rong Viet projects wood sales growth of 15.5% and gross profit contribution to increase from 29.7% (2014-18) to 35.3% (2019-23).
We like PTB’s ability to accumulate quarries given its more than 10 years of experience and healthy financials. Efforts in restructuring personnel and production processes in both wood and stone segments should favor a sustainable growth. Automobile dealership and relating service, thanks to Toyota's dominant market share (circa 24.8%) and PTB in the central region (average of 28.9%) are expected to bring a stable annual cash flow of VND 80 - 120 billion.
Rong Viet likes PTB’s long-term prospect based on its solid ability for scaling up. Debt financing was enhanced for new quarries, machinery and working capital. The financial structure improved as the D/E ratio decreased from 1.53x (2014) to 0.96x (6M2019). Operating performance was impressive with NPAT CAGR of 28.1%. Using SoTP method, we come up with a fair value of VND 86,600, suggesting a current FY2019 P/E of 6.8x and a total return of 27%, based on the closing price on September 20. We then recommend a "BUY" for this stock.
Phu Tai JSC Formerly known as Phu Tai Corp. Phu Tai JSC is a Vietnam-based retailer of automobiles. It is specialized in the distribution and trading of Toyota-branded automobiles. In addition, it provides maintenance and fixing services, as well as spare parts for Toyota auto vehicles. The Company is also engaged in the manufacture and processing of interior and exterior wooden furniture, as well as the exploitation of stones and the manufacture of construction materials.
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