FC Research Analyst: Amanda Lokugamage

Transcription

1 Analyst: Amanda Lokugamage PIRAMAL GLASS CEYLON PLC SRI LANKA Earnings Update REITERATE BUY GLAS.N0000 Current Price: LKR 6.2 Fair Value: LKR 7.5 MAY 2015 KEY DATA Share Price (LKR) w High/Low (LKR) 6.50/3.40 Average Daily Volume (Shares) 1,455,317 Average Daily Turnover 7,304,334 Issued Share Capital (Shares mn) Market Capitalisation (LKR mn) 5,891 Price Performance (%) 1 mth 3 mths 12mths GLAS 6.9% 1.6% 67.6% ASPI 5.0% -1.2% 14.9% Major Shareholders as at 31st Mar 2014 Piramal Glass Limited Employees Provident Fund CITI Bank NA S/A Forward International Dividend Fund Mr G Dangampola & Mrs N P Dangampola Deutsche Bank AG as Trustee to Astrue Alpha Fund Public Holdings 20.00% 9.92% 9.90% 9.47% 8.98% 43.54% Figure 1: GLAS Price Volume Graph P/E 31 March Actual Estimated FY14 FY15 FY15 FY16E FY17E FY18E Revenue (LKR mn) 5,220 5,792 5,945 6,473 7,064 7,710 Net Profit (LKR Mn) Recurring Profit (LKR Mn) EPS (LKR) YoY % Growth -75% 139% 154% 59% 15% 14% Valuations PER (X) PBV (X) Dividend Yield (%) 6.1% 3.2% 3.6% 5.1% 5.9% 6.7% NAVPS DPS (LKR) Payout Ratio 43% 43% 45% 43% 43% 43% FY15 earnings inline: Despite the exceptional performance recorded in the 4QFY15, GLAS s FY15 earnings were broadly in line as results fell short of our expectation by a marginal 6% to LKR 439mn, a YoY growth of 139%. FC Research GP margin target was spot on at 19% for FY15 while revenue forecast fell short by a mere 3% (Refer 1.0). 24% Return Target Price Current Price Piramal Glass earnings are expected to record a CAGR of 27% FY16E-18E amidst a buoyant earnings growth of 59% for FY16E backed by strong local consumer demand amidst growing disposable income and lower energy costs affecting margins positively. Amidst the new developments FC Research upgrades GLAS target price from LKR 6.2 to LKR 7.5 providing total return of 24% including dividends over a 1 year period. REITERATE BUY. 78% Return Recommended Price Growing Consumer Demand: We expect the topline to grow by a CAGR of 10% FY16E-18E while revenue for FY16E is expected grow by c.12% reaching LKR 6.4bn. High disposable income deriving from increased salaries and reduced energy cost is expected result in a strong growth in consumer demand. With liquor sales contributing a major portion of GLAS s colour bottle sales the expected increase in consumption of liquor is likely drive the sales volumes of GLAS. Source: CSE Lower Energy Cost: With the reduction in energy prices GP margin is expected to improve further to c.23% in FY16E from c.19% in FY15 and c.14% in FY14. Lower energy prices did play a major part in 4QFY15 as well. In addition to the reduction in electricity prices LP Gas was reduced by 33% and Furnace Oil was reduced by 11%. Disclaimer on Shareholding: First Capital does not hold positions in GLAS nor does First Capital envisage taking positions in this share for the succeeding 7 trading days to this report. Fair Value of LKR 7.5: We believe GLAS earnings are likely to grow by c.59% in FY16E to LKR 698mn. Our fair value for GLAS is at LKR 7.5 (average of discounted cash flow based value of LKR 9.1 and PER based price of LKR 5.9) resulting in a capital gain of 21% and dividend yield of 3%.

2 1.0 Earnings Update P/E 31 March 4QFY15 4QFY14 YoY 3QFY14 QoQ Revenue 1,642 1,356 21% 1,592 3% Gross Profit % % EBIT % % Finance Cost % 33-22% Net Profit % % P/E 31 March FY15 FY14 YoY Revenue 5,792 5,220 11% Gross Profit 1, % EBIT % Finance Cost (126) (201) -37% Net Profit % Earnings Surged by 244%: GLAS recorded a profit of LKR 209mn (+244% QoQ) in 4QFY15 with strong contribution stemming from margin expansion and growing revenue lines in both local and foreign segments. FY15 full year earnings grew by 139% to LKR 439mn opposed to LKR 184mn recorded in FY14 GP Margins Back on Track: GLAS s GP margin improved to 25% in 4QFY15 opposed to 14% recorded in 4QFY14 on the back of declining prices of energy commodities which account for 40% of GLAS s cost structure and volume growth supported strong demand. GLAS managed to boost annual GP margins to 19% in FY15 compared to 15% in FY14. Topline saw a 21% YoY growth fueled by the growth of 25% in domestic sales and 8% in exports during the 4QFY15. Plunging Finance Cost amidst Lower Interest Rate Regime: Since GLAS s borrowing portfolio mainly consists of floating interest rate related borrowings, the company s finance cost for the 4QFY15 reduced by 36% YoY to LKR 26mn (LKR 41mn in FY14) while QoQ fell by 22% on the back of the low interest rate regime in the economy. 2.0 Total return of 24% for FY16E Figure 2: ASPI vs GLAS Actual Estimated P/E 31 March FY14 FY15 FY15 FY16E FY17E FY18E Revenue (LKR mn) 5,220 5,792 5,945 6,473 7,064 7,710 Net Profit (LKR Mn) Recurring Profit (LKR Mn) EPS (LKR) YoY % Growth -75% 139% 154% 59% 15% 14% Valuations PER (X) PBV (X) Dividend Yield (%) 6.1% 3.2% 3.6% 5.1% 5.9% 6.7% NAVPS DPS (LKR) Payout Ratio 43% 43% 45% 43% 43% 43% GLAS Valued at LKR 7.5: FC Research is upgrading its previous target price for GLAS to LKR 7.5 from LKR 6.2 on the back of upgrades in forecasted earnings. The new target price provides a return of 24% including dividends on a 1 year time horizon. The target price of LKR 7.5 is based on the average price of LKR 9.1 via DCF valuations and LKR 5.9 via PER based valuations. 2

3 2.1 Discounted Cash flow Valuation COE (K e) R f 8% R m 16% 1.10 K e =R f + (R m -R f ) 17% Valuations NPV 9,823 Debt (-) -1,302 Cash (+) 145 Total Value of Equity 8,667 No. of Shares 950 Value of Equty per Share 9.1 WACC K e 17% K d 8% D/E Assumption 40 / 60 Terminal Growth (%) 3% WACC 13% Terminal Growth (%) WACC 9 11% 12% 13% 14% 15% 1% % % % % Average PER of 8.0 times Figure 3: PE Band Graph PER based Valuation FY16E Earnings (LKR 'Mn) 698 No. of Shares ('Mn) 950 FY16E EPS 0.73 Expected PER 8.0x Price at 8.0x FY16E Earnings 5.9 Being on a conservative note we expect GLAS to trade at a PER of 8.0x on FY16E earnings, despite the higher PERs GLAS has been trading in the past. 3

4 2.3 Fair Value of LKR 7.5 and total return of 24% Expected GLAS price for FY16E DCF Valuation based target price 9.1 PER based target price 5.9 Average Target Price 7.5 Return Target Price 7.5 Current Price 6.2 Capital Gain (LKR) 1.3 Dividend FY15 (LKR) 0.2 Capital Gain % 21% Dividend Yield % 3% Total Return % 24% 4

5 Appendix 1 Income Statement Profit & Loss Statement P/E 31 March FY14 FY15E FY16E FY17E FY18E Revenue 5,220 5,792 6,473 7,064 7,710 Cost of Sales (4,414) (4,675) (4,971) (5,407) (5,882) Gross Profit 806 1,117 1,501 1,657 1,828 Other Operating Income Profit on Disposal of Investment Property Distribution Costs (98) (107) (115) (124) (134) Administrative Expenses (332) (382) (417) (454) (495) PBIT 1, ,097 1,218 Finance Cost (201) (126) (114) (97) (82) Profit/(Loss) Before Tax ,000 1,136 Taxation (5) (69) (174) (200) (227) Net Profit Sources: Company Reports and FC Research Estimates 5

6 Appendix 2 Balance Sheet Balance Sheet P/E 31 March FY14 FY15E FY16E FY17E FY18E Assets Non - Current Assets Property, Plant and Equipment 3,678 3,561 3,296 3,019 2,727 Leasehold Land Intangible Assets Other Assets ,715 3,595 3,329 3,050 2,757 Current Assets Inventories 1,589 1,433 1,602 1,748 1,908 Trade and Other Receivables 1,117 1,260 1,408 1,537 1,677 Other Cash and Bank Balances ,879 2,871 3,205 3,737 4,498 Total Assets 6,594 6,466 6,534 6,786 7,256 Equity and Liabilties Capital and Reserves Stated Capital 1,526 1,526 1,526 1,526 1,526 Reserves Retained Earnings 1,888 1,965 2,361 2,815 3,331 3,549 3,626 4,022 4,476 4,992 Non - Current Liabilities Interest Bearing Loans and Borrowings Deferred Tax Liabilities Retirement Benefit Obligations Current Liabilities Trade and Other Payables 1, ,006 1,095 Dividends Payable Income Tax Payable Interest Bearing Loans and Borrowings 1,785 1,520 1, ,852 2,422 2,129 1,945 1,901 Total Equity & Liabilties 6,594 6,466 6,534 6,786 7,256 Sources: Company Reports and FC Research Estimates 6

7 Appendix 3 Cash Flow Statement Cashflow Statement P/E 31 March FY14 FY15E FY16E FY17E FY18E Net Profit Before Tax ,000 1,136 Adjustments Changes in Working Capital (218) (178) (261) (194) (212) Inerest paid (202) (127) (114) (97) (82) Defined Benefit Obligations paid (18) (9) (11) (11) (12) Tax Paid - - (174) (200) (227) Net cashflow from operating activities ,097 1,202 Investing Activities Fixed Assets (312) (322) (200) (200) (200) Other Net cashflow from investing activities 469 (309) (200) (200) (200) Financing Activities Net Borrowings (308) (111) (394) (294) (147) Dividends (353) (352) (302) (346) (393) Other Net Cashflow from financing activities (659) (462) (696) (640) (540) Net cash and cash equivalents Net forex gain 1 (0) At start of the year (123) At end of period Cash of Balance Sheet Bank Overdraft (37) (21) (21) (21) (21) Net cash from Cashflow Sources: Company Reports and FC Research Estimates 7

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