Earnings ahead of our estimates Reiterate Buy rating with upward revision

Transcription

1 Millions Al Maha Research Earnings ahead of our estimates Reiterate Buy rating with upward revision Revised Target Price: RO.347 MSM Ticker ATMI Stock Price.289 Face Value (RO).1 52-wk High / Low (RO).339 /.25 Equity Cap. (RO Mn) Market Cap. (RO Mn) 36.1 Share Holding Pattern as on 3 th June 11 Financial Highlights - H1 211 Rating: Buy ATMI continues the growth momentum of the first quarter, with the Company reporting a net profit of RO1.1mn for three months and RO2.1mn for six months ended June 211, registering an increase of 9% for Q2 11 compared to Q1 11 and a growth of 82% for H1 11 compared to H1 1. Public 33% Others 16% Global Buyout Fund LP 51% Revenue recorded for the period was RO46.7mn as against RO32.1mn for H1 1, showing an increase of 46% y-o-y and 7% q-o-q for Q2 11. Growth in revenue is attributed to an increase in sales volumes and an improvement in realizations Key Ratios FY8 FY9 FY1 FY11E P/E 19.2 NA P/BV Div Yield 2.7% % 3% 4.3% RoAE 5.7% NA 6.3% 9.5% RoAA 2.6% NA 3.1% 4.3% Relative Performance (%) MSM 3 ATMI ATMI over MSM 1 Month -1.15% 1.3% 2.18% 3 Month -7.68% 1.38% 9.6% 6 Month % -3.62% -9.5% 12 Month 6.6% -8.7% -2.1% Movement of ATMI vs. MSM 3 Index Jun 1, 21 Aug 29, 21 ATMI MSM Volume Dec 2, 21 Mar 7, 211 Jun 9, Total capacity utilization for H1 11 was 46% with the Merchant Bar Mill achieving breakeven in the last quarter. Operating profit grew 37% y-o-y for H1 11 and 6% q-o-q for Q2 11 to reach RO3.2mn for six months. Outlook & Recommendation We maintain positive outlook on Al Jazeera Steel Products for the long term based on the growth prospects backed by improving demand supply scenario. At the current price of RO.289, the stock trades at a PBV of 1.3x to the expected book value for FY12 and PE of 11.1x to FY12E earnings. We revise our target price to RO.347 from RO.34 and reiterate Buy rating for the stock with an upside potential of 2% from the current price. Key Financials Figures in 's except per share data FY 29 FY 21 FY 211E FY 212E Revenue 39,967 64,912 94,47 96,768 Gross profit 4,117 8,585 11,843 12,186 Operating profit 955 4,143 5,44 5,64 Net Profit (773) 1,93 3,69 3,28 Page 1 of 7

2 (in OMR 's) (in OMR 's) Al Maha Research Performance Overview - H Q2'1 Q3'1 Q4'1 Q1'11 Q2'11 Operating Profit (RHS) Net Profit (RHS) Revenue Al Jazeera Steel Products Company continued to deliver exceptional results in the second quarter of this financial year. The Company s improved margins and profitability was supported by better capacity utilization and improved realizations. The average realizations improved from RO 333 per tonne in the first quarter to RO 342 per tonne in the second quarter. We revise our profit estimates for FY 211 to RO 3.2 million and expect the net profits to grow at a CAGR of 16% over the period FY 21 FY 215. ATMI continues to remain the market leader in the Sultanate. Demand for pipe mill products and merchant bar mill products was strong in the second quarter, not only from the GCC market but also from North America which drove the top line growth. The Company s exports have shown an increase in the first half of the current year as compared to same period last year. Going forward, we expect exports to rise backed by sizeable volume of orders on hand from North America. We expect the top line to grow at a CAGR of 12% over FY 21 FY 215. The Merchant Bar Mill products witnessed a wide acceptance in North American market as well as the local market. With the improvement in regional demand, the MBM plant recorded significant improvements in production levels. The Company has achieved break even in MBM products this quarter. Efficient inventory control and raw material sourcing have helped the Company to boost up productivity in the MBM segment. Borrowings have increased in second quarter of the year by RO million, mainly due to the working capital needs. However, the finance cost remained steady at RO.995 million for the first half, which is in line with our estimates. The net debt to equity ratio of the Company stands at 5% as on 3 June 211. The Company depends on trucks and trailers to dispatch its finished products to neighboring countries like Bahrain, Qatar, Kuwait and Saudi Arabia. We understand that there is a shortage of trucks and trailers which may result in higher freight cost and/or piling up of finished products for the Company impacting the profitability. Page 2 of 7

3 Revised Financial Highlights Figures in 's except per share data FY 28 FY 29 FY 21 FY 211E FY 212E FY 213E FY 214E FY 215E Revenue 78,436 39,967 64,912 94,47 96,768 11,4 14,4 112,86 Gross profit 7,494 4,117 8,585 11,843 12,186 12,38 12,769 13,465 Operating profit 3, ,143 5,44 5,64 5,526 5,739 5,847 Net Profit 1,719 (773) 1,93 3,69 3,28 3,224 3,431 3,551 Total equity 31,69 29,421 31,324 33,269 35,15 36,598 38,418 4,254 Total assets 8,82 57,571 66,29 76,969 76,755 77,87 79,475 81,579 Earnings per share Book Value per share Valuations & Outlook Relative Valuation Comparable Company Valuations Al Jazeera Steel Products Company Arab Engineering Industries, Egypt Arabian Pipes Company KSA Jordan Pipes Manufacturing, Jordan P/E(TTM) NEG 2.37 Price/Book Price/ Revenues Median Benchmark multiples for relative valuation are arrived at by assigning equal weights to Five year historic median of one year forward multiples of ATMI & The peer group median Page 3 of 7

4 Relative Price to Earnings E Price to Earnings (1 year fwd.) Historic Median of Last 5 Years 12.5 Peer Group Median Benchmark Multiple 13.7 Earnings per Share (212E ).26 Equity Value Per share.36 Relative Price to Book E Price to Book (1 year fwd.) Historic Median of Last 5 Years 1.12 Peer Group Median 1.26 Benchmark Multiple 1.19 Book Value per Share (212E ).28 Equity Value Per share.334 Weighted Average Valuation Matrix Valuation Matric Weights Fair Value Price to Book Value 5%.334 Price to Earnings 5%.36 Weighted Average Fair Value 1%.347 Current Market Price.289 Up side 2% We maintain a positive outlook on Al Jazeera Steel Products for the long term based on strong growth prospects of the Company. We reiterate Buy rating for the stock and revise the target price to RO.347 from our earlier target of RO Page 4 of 7

5 Al Maha Rating System Al Maha uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage. "Buy": Our target price is more than 15% above the current share price, and we expect the share price to reach the target on a 9-12 month time horizon. "Accumulate": We expect the share price to settle at a level between 5% below the current share price and 15% above the current share price on a 9-12 month time horizon. "Neutral": Our target price is more than 5% below the current share price, and we expect the share price to reach the target on a 9-12 month time horizon. Definitions: "Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company s profits or operating performance exceed or fall short of our expectations. Page 5 of 7

6 PO Box 165 PC 117, Al Wadi Al Kabir, Sultanate of Oman Tel: , Fax: Award Winner 21 Excellence in Brokerage Business Awarded for Research Promotion and Website Content By Muscat Securities Market Contacts Telephone Research: Suresh Kumar Radhika Gadhia Khushboo Badlani Portfolio Management : S.V. Uppiliappan uppiliappan@almahafinancial.com Institutional Sales: A. S. Kedarnath kedar@almahafinancial.com Brokerage: Abdullah Al Hinai abdullah@almahafinancial.com Mahmoud Al Hamsaidi mahmoud@almahafinancial.com Nasser Al Banna nasser@alamahfinancial.com Operations & Customer service : Zakia Al Ghammari zakia@almahafinancial.com Muna Al Hashmi muna@almahafinancial.com Page 6 of 7

7 DISCLAIMER: The research report has been prepared by for private circulation amongst selected clientele for information purposes only and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe any investment. This Report is not directed to, or intended to be used by, any person or entity who (or which) is a citizen of (or domiciled) in any jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the company to any registration or licensing requirements within such jurisdiction. will not be liable for any direct or indirect losses arising from the use thereof, and the investors are expected to use the information contained herein at their own risk. and its affiliates including analyst who has issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to companies mentioned herein or inconsistent with any recommendation and related information and opinions. Al Maha Financial Services LLC and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. The information contained in this report has been obtained from the sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, makes no guarantee, representation or warranty, whether expressed or implied, and accepts no responsibility or liability to its accuracy and completeness of the data, being provided. Opinion expressed is our current opinion as of the date appearing on this material only. We do not undertake to advise you as to any change of our views expressed in this document. The investments discussed in this report may not be suitable for all the investors. Investors must take their own decision based on their specific investment objectives and financial position, and using such independent advisors, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall against the interest of investors. This document is strictly for the use of recipients only. None of the material provided herein may be reproduced, rewritten, rehashed, published, resold or distributed in any manner whatsoever without the prior and explicit written permission of. Page 7 of 7