room to grow
Masterkool International Outperform (17E TP Bt6.40)
Company Update
Close Bt5.75
MAI‐ Services
Earnings upgrade/Earnings downgrade/Overview unchanged
September 9, 2016
More room to grow Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.22
0.28
KT ZMICO vs. consensus Share data
0.0%
0.0%
Reuters / Bloomberg
KOOL.BK/KOOL TB
Paid‐up Shares (m)
480.00
Par (Bt)
0.25
Market cap (Bt bn / US$ m)
3.00/79.00
Foreign limit / actual (%)
49.00/17.02
52 week High / Low (Bt)
7.00/1.01
Avg. daily T/O (shares 000)
14,718.00
NVDR (%)
0.12
Estimated free float (%)
38.12
Beta
2.15
URL
www.masterkool.com ‐
CGR Anti‐corruption
n.a.
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273 Ruchanon Chiemkarnkit Assistant analyst
KOOL becoming attractive again; recommend Outperform We reinitiate our coverage on KOOL, with a positive view towards the firm’s business outlook after it adjusted its strategy to cope with the negative seasonal effects (i.e., low season in 2H16). The new strategy should enable the firm to turn profitable. In addition, distribution through Tesco Lotus should help to strengthen its distribution channels. We recommend an Outperform rating, with the 2017E target price of Bt6.4/share and 2017E PER of 23x, higher than peers’ PER average of 18x. We believe this is justified considering its outstanding earnings outlook of 28% CAGR during 2016‐17E on the back of the expected growth of all sales channels, especially retail shops and overseas distributors. Online marketing to help create brand awareness in the long term KOOL is a distributor of evaporative fans with the trademark “Masterkool”. Its below‐the‐line marketing strategy has been a huge success while its online marketing has becoming more successful. Its strengths include good product quality with reasonable prices. The firm’s products are distributed through four major distribution channels, namely modern trade networks, organizations, authorized domestic distributors, and authorized overseas distributors. Its effort to broaden brand awareness as well as sales through the four channels in the past four years has been a major driver for average sales growth of 41% p.a. 2016‐18E earnings to achieve 28% CAGR We expect KOOL’s earnings to achieve 28% CAGR during 2016‐18E. The rising average yearly temperature has been a reason why evaporative fans have become attractive cooling choices with growing demand. We project revenue growth of 27% CAGR during 2016‐18E, driven by: i) increasing sales points in retail shops (note: the firm is now in talks with Tesco Lotus, with distribution at Tesco Lotus superstores expected in early 2017E); ii) launches of new products to attract new a customer group (i.e., restaurant operators); iii) having SINGER as a distributor, which will help it expand to untapped markets; and iv) increases in overseas distributors. Low season in 2H16 but overseas sales expected to improve Evaporative fans sell particularly well in summer (1H) while sales slow down in the latter half of the year. We believe the negative seasonal effects in 2H should be well offset by more product distribution to overseas markets, sales to organizations, and lower marketing costs. We expect the firm’s 2H16 earnings to account for 5% of the full‐year target. The quarterly earnings growth in 2H16 should weaken QoQ but likely improve YoY from the loss reported for 2H15. Financials and Valuation FY Ended 31 Dec Revenues (Bt mn) Net profit (Bt mn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt)
2014 459 31 0.10 616% 0.08 0.30
2015 636 8 0.02 ‐81% 0.02 0.68
2016E 918 107 0.22 1014% 0.09 0.83
2017E 1,231 134 0.28 25% 0.11 1.00
2018E 1,487 175 0.36 31% 0.15 1.22
FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net Gearing (%)
2014 55.5 52.5 19.1 1.4% 32.4% 123.5%
2015 286.6 109.0 8.5 0.3% 3.7% ‐4.8%
2016E 25.7 18.2 6.9 1.6% 29.6% 23.9%
2017E 20.6 14.7 5.8 1.9% 30.6% 20.4%
2018E 15.8 11.4 4.7 2.5% 33.0% 0.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
KOOL becoming attractive again due to better‐than‐expected 1H16 earnings We have become interested in KOOL once again after its 1H16 earnings beat our expectation. The firm reported 1H16 net profit of Bt102mn, up 275%YoY, driven by a 53% increase in total sales generated by distribution through retail shops and overseas distributors. The launches of new products also acted as another earnings driver for 1H16. However, the new products yield narrower margins than the products sold to organizations and domestic distributors. Hence, the firm’s gross profit margin narrowed to 37.5% in 1H16 vs. 43% in 1H15. SG&A to sales in 1H16 fell to 17% from 33% in 1H15 because the firm managed to control its marketing expenses better. The firm’s 1H16 earnings accounted for 95% of our full‐year projection as 2H16 is the low season when the firm’s operating performance is expected to drop sharply. However, unlike in 2H15, KOOL’s earnings should remain in the black in 2H16 thanks to its marketing strategy adjustment with higher exposure to overseas sales, especially from South Africa and South America. Figure 1: KOOL’s 2Q16 performance Profit and Loss (Btmn) Revenue COGS
2Q15
1Q16
2Q16
%YoY
%QoQ
296.13
225.36
441.67
49.1%
96.0% 435.14 667.02
53.3% 918.31
72.6%
(159.37) (143.45) (274.30)
72.1%
91.2% (242.39) (417.75)
72.3% (575.78)
72.6%
Gross profit
136.76
81.90
167.37
22.4%
SG&A expens e
(94.37)
(63.83)
(62.46)
‐33.8%
Other i ncome
1H15
104.3% 192.75
1H16
%YoY
249.27
‐2.1% (156.95) (126.28)
2016E YTD(% of 2016E)
29.3% 342.53
72.8%
‐19.5% (212.10)
59.5% 44.1%
1.17
3.34
0.72
‐38.8%
‐78.6% 3.60
4.05
12.5% 9.18
EBIT
43.56
21.41
105.62
142.5%
393.2% 39.40
127.04
222.5% 139.61
91.0%
Interes t expens e
(2.89)
(0.98)
‐87.6%
‐63.4% (5.45) (1.34)
‐75.5% (5.50)
24.3%
EBT
40.67
20.44
105.27
158.9%
415.1% 33.95
270.3% 134.11
93.7%
Ta x expens e
(7.19)
(3.84)
(19.90)
176.9%
418.2% (6.78) (23.74)
250.2% (26.82)
88.5%
Norm.profit
33.48
16.60
85.37
155.0%
414.4% 27.17
275.3% 107.29
95.0%
(0.36)
125.70 101.97
Net profit
33.48 16.60 85.37
155.0%
414.4% 27.17 101.97
275.3% 107.29
95.0%
EPS(Bt)
0.08 0.04 0.18
112.5%
393% 0.07 0.21
215.0% 0.22
95.7%
Gros s ma rgi n
46.2%
36.3%
37.9%
44.3%
37.4%
37.3%
EBIT ma rgi n
14.7%
9.5%
23.9%
9.1%
19.0%
15.2%
Norm.profi t ma rgi n
11.3%
7.4%
19.3%
6.2%
15.3%
11.7%
Net ma rgi n
11.3%
7.4%
19.3%
6.2%
15.3%
11.7%
Source: KT ZMICO Research Revise up earnings projections to reflect growth in all channels and better cost control We have revised up our earnings projections by 86‐119% in 2016‐18E to reflect the following factors. First, the sales are likely to beat the previous expectation due to the launch of new products with lower prices but the same cooling quality; the new products are expected to boost sales from all channels. Second, the gross profit margin is now anticipated at 37.3‐37.7%, down from 42% in 2015, thanks to the launch of new products that yield narrower margins than the existing products and higher exposure to retail shops and overseas distributors. Finally, SG&A to sales are now projected to fall to 23‐25% from 37% in 2015 thanks to the likelihood of higher revenue and marketing cost control (with more focus on online media). Figure 2: Key assumption changes List
New 918
Revenue GPM % SG&A to sales (%)
Core Net profit (Btmn) NPM (%)
2016E Old 808
37.3%
42.4%
23.1% 107.3 11.7%
34.18% 57.8 7.2%
%Change
New
2017E Old
13.6%
1,231
85.6%
2018E Old
%Change
New
929
32.3%
1,487
1,038
43.3%
37.6%
42.0%
37.7%
42.0%
24.5% 134.1 10.9%
33.81% 66.6 7.2%
101.4%
23.5% 175.1 11.8%
33.4% 80.3 7.7%
118.8%
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
%Change
More room for growth from modern trade and domestic distributors Sales revenue from retail customers through modern trade and authorized domestic distributors currently accounts for 41% and 20%, respectively, of total revenue. The firm’s products are now distributed in 245 modern trade outlets, mostly in HomePro, Makro, Megahome, Thai Wasadu, Global House, etc, as well as over 250 domestic distributors nationwide. We believe the firm will see further growth from these channels due to the following factors. First, it has begun to distribute products in 40 Tesco Lotus stores, with expected further expansion to a total of over 100 stores from early 2017E onwards. Second, the firm has collaborated with SINGER on marketing to customers in untapped segments. Finally, the firm has launched smaller and cheaper products while maintaining the same cooling quality.
Figure 3: Revenue breakdown
Figure 4: Number of branches in each channel no.branch
m.n. 1,487
1,600
800 700
1,400 1,200 918
1,000 800 600
459 305 45 68 134 58
400
227 30 200 56 126 15 ‐ 2555 Agent
70 93 139 157
636
203
118 109 137
175
273
1,231
286
240
225
200 416 297
493
336
45
500 43
400
560
2558 2559E Direct sale
22
37
100
192
144
12
39
2560E 2561E Modern trade
Source: KT ZMICO Research
250
283
200
0
2556 2557 Dealer
250
250
37 211
300
205
52
48
600
2012
400
360 112
2013
245
204
2014 2015 Dealer
Agent
2016E 2017E Modern trade
Source: KT ZMICO Research
More aggressive expansion in overseas markets KOOL’s revenue from authorized overseas distributors in 1H16 amounted to Bt137mn, growing by 137%YoY. The growth was driven by the rising heat as well as better brand awareness among consumers. The revenue from this distribution channel accounted for 20% of the total revenue in 1H16. Over 50% of overseas sales growth was contributed by sales in AEC countries with 37 distributors currently. Furthermore, the firm plans to authorize local distributors in South Africa and South America in order to offset the expected weak domestic performance during the low season in 2H. The firm is expected to increase the number of its efficient overseas distributors to 45‐52 branches in 2016‐18E. Finally, we expect the revenue contribution from overseas distributors to account for around 20‐22%.
Figure 5: PER (average 32.0x) and PBV band (average 8.6x) (X)
(X)
40
10.0 9.0
+2.0 S.D.
7.0
8.0
25
+3.0 S.D. +2.0 S.D.
6.0
+1.0 S.D.
4.0
Mar-16
Feb-16
Aug-16
Jul-16
Jun-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Jan-16
0
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Aug-16
-1.0 S.D.
0.0
Jul-16
1.0
Jun-16
2.0
-1.0 S.D.
5
Avg.
3.0
10
Jun-16
Avg.
May-16
15
+1.0 S.D.
5.0
Apr-16
20
Jan-16
30
+3.0 S.D.
Jan-16
35
2018E
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Gain (loss) from affiliates Extra Items Non‐controlling Net profit Reported EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories Investment PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity CASH FLOW (Btmn) Net income Non‐cash adjustment Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013
2014
2015
2016E
2017E
2018E
305 (171) 134 (130) 13 (7) 7 (3) 2 3 (0) 0 0 0 3 0.01 3 0.01 0.08
459 (260) 199 (159) 52 (8) 44 (6) 5 38 (7) 0 0 0 31 0.10 31 0.10 0.08
636 (373) 263 (252) 25 (9) 16 (8) 4 8 (0) 0 0 0 8 0.02 8 0.02 0.02
918 (576) 343 (212) 151 (11) 140 (6) 9 134 (27) 0 0 0 107 0.22 107 0.22 0.09
1,231 (768) 463 (302) 186 (13) 173 (6) 12 168 (34) 0 0 0 134 0.28 134 0.28 0.11
1,487 (927) 561 (350) 242 (16) 226 (7) 15 219 (44) 0 0 0 175 0.36 175 0.36 0.15
2013
2014
2015
2016E
2017E
2018E
2 42 106 0 25 40 215 91 0 130 70 85 215
1 54 172 0 38 55 320 135 0 211 90 109 320
104 84 231 0 58 70 547 86 2 221 120 326 547
56 98 414 0 68 69 654 100 0 256 120 399 654
73 131 500 0 81 70 785 100 0 306 120 479 785
86 159 608 0 95 70 952 120 0 368 120 584 952
2013
2014
2015
2016E
2017E
2018E
4 12 7 (56) (33) (7) (9) (16) 44 26 (23) 0 47 (3) (50) 1.74
45 1 8 (60) (6) (14) (18) (32) 44 20 (28) 0 36 (1) (38) (0.26)
9 21 9 (64) (25) (20) (6) (26) (54) 208 0 0 154 103 (51) (0.12)
107 0 11 (173) (55) (21) 0 (21) 12 8 (43) 0 (23) (100) (76) (0.13)
134 0 13 (69) 78 (27) 0 (27) 0 0 (54) 0 (54) (2) 51 (0.16)
175 0 16 (93) 98 (30) 0 (30) 20 0 (70) 0 (50) 18 68 0.11
2013
2014
2015
2016E
2017E
2018E
34.6% ‐63.7% ‐99.7% 44.0% 4.3% 2.1% 0.9% 0.9% 15.0%
50.2% 294.6% 615.6% 43.3% 11.4% 9.7% 6.8% 6.8% 18.3%
38.8% ‐51.8% ‐80.6% 41.4% 4.0% 2.5% 1.3% 1.3% 4.7%
44.3% 497.8% 1014.1% 37.3% 16.4% 15.2% 11.7% 11.7% 20.0%
34.0% 23.8% 25.0% 37.6% 15.2% 14.1% 10.9% 10.9% 20.0%
20.9% 29.5% 30.6% 37.7% 16.2% 15.2% 11.8% 11.8% 20.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, TPOLY, M‐CHAI, EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH, BCPG.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt5.75
MAI‐ Services
Earnings upgrade/Earnings downgrade/Overview unchanged
September 9, 2016
More room to grow Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.22
0.28
KT ZMICO vs. consensus Share data
0.0%
0.0%
Reuters / Bloomberg
KOOL.BK/KOOL TB
Paid‐up Shares (m)
480.00
Par (Bt)
0.25
Market cap (Bt bn / US$ m)
3.00/79.00
Foreign limit / actual (%)
49.00/17.02
52 week High / Low (Bt)
7.00/1.01
Avg. daily T/O (shares 000)
14,718.00
NVDR (%)
0.12
Estimated free float (%)
38.12
Beta
2.15
URL
www.masterkool.com ‐
CGR Anti‐corruption
n.a.
Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273 Ruchanon Chiemkarnkit Assistant analyst
KOOL becoming attractive again; recommend Outperform We reinitiate our coverage on KOOL, with a positive view towards the firm’s business outlook after it adjusted its strategy to cope with the negative seasonal effects (i.e., low season in 2H16). The new strategy should enable the firm to turn profitable. In addition, distribution through Tesco Lotus should help to strengthen its distribution channels. We recommend an Outperform rating, with the 2017E target price of Bt6.4/share and 2017E PER of 23x, higher than peers’ PER average of 18x. We believe this is justified considering its outstanding earnings outlook of 28% CAGR during 2016‐17E on the back of the expected growth of all sales channels, especially retail shops and overseas distributors. Online marketing to help create brand awareness in the long term KOOL is a distributor of evaporative fans with the trademark “Masterkool”. Its below‐the‐line marketing strategy has been a huge success while its online marketing has becoming more successful. Its strengths include good product quality with reasonable prices. The firm’s products are distributed through four major distribution channels, namely modern trade networks, organizations, authorized domestic distributors, and authorized overseas distributors. Its effort to broaden brand awareness as well as sales through the four channels in the past four years has been a major driver for average sales growth of 41% p.a. 2016‐18E earnings to achieve 28% CAGR We expect KOOL’s earnings to achieve 28% CAGR during 2016‐18E. The rising average yearly temperature has been a reason why evaporative fans have become attractive cooling choices with growing demand. We project revenue growth of 27% CAGR during 2016‐18E, driven by: i) increasing sales points in retail shops (note: the firm is now in talks with Tesco Lotus, with distribution at Tesco Lotus superstores expected in early 2017E); ii) launches of new products to attract new a customer group (i.e., restaurant operators); iii) having SINGER as a distributor, which will help it expand to untapped markets; and iv) increases in overseas distributors. Low season in 2H16 but overseas sales expected to improve Evaporative fans sell particularly well in summer (1H) while sales slow down in the latter half of the year. We believe the negative seasonal effects in 2H should be well offset by more product distribution to overseas markets, sales to organizations, and lower marketing costs. We expect the firm’s 2H16 earnings to account for 5% of the full‐year target. The quarterly earnings growth in 2H16 should weaken QoQ but likely improve YoY from the loss reported for 2H15. Financials and Valuation FY Ended 31 Dec Revenues (Bt mn) Net profit (Bt mn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt)
2014 459 31 0.10 616% 0.08 0.30
2015 636 8 0.02 ‐81% 0.02 0.68
2016E 918 107 0.22 1014% 0.09 0.83
2017E 1,231 134 0.28 25% 0.11 1.00
2018E 1,487 175 0.36 31% 0.15 1.22
FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net Gearing (%)
2014 55.5 52.5 19.1 1.4% 32.4% 123.5%
2015 286.6 109.0 8.5 0.3% 3.7% ‐4.8%
2016E 25.7 18.2 6.9 1.6% 29.6% 23.9%
2017E 20.6 14.7 5.8 1.9% 30.6% 20.4%
2018E 15.8 11.4 4.7 2.5% 33.0% 0.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
KOOL becoming attractive again due to better‐than‐expected 1H16 earnings We have become interested in KOOL once again after its 1H16 earnings beat our expectation. The firm reported 1H16 net profit of Bt102mn, up 275%YoY, driven by a 53% increase in total sales generated by distribution through retail shops and overseas distributors. The launches of new products also acted as another earnings driver for 1H16. However, the new products yield narrower margins than the products sold to organizations and domestic distributors. Hence, the firm’s gross profit margin narrowed to 37.5% in 1H16 vs. 43% in 1H15. SG&A to sales in 1H16 fell to 17% from 33% in 1H15 because the firm managed to control its marketing expenses better. The firm’s 1H16 earnings accounted for 95% of our full‐year projection as 2H16 is the low season when the firm’s operating performance is expected to drop sharply. However, unlike in 2H15, KOOL’s earnings should remain in the black in 2H16 thanks to its marketing strategy adjustment with higher exposure to overseas sales, especially from South Africa and South America. Figure 1: KOOL’s 2Q16 performance Profit and Loss (Btmn) Revenue COGS
2Q15
1Q16
2Q16
%YoY
%QoQ
296.13
225.36
441.67
49.1%
96.0% 435.14 667.02
53.3% 918.31
72.6%
(159.37) (143.45) (274.30)
72.1%
91.2% (242.39) (417.75)
72.3% (575.78)
72.6%
Gross profit
136.76
81.90
167.37
22.4%
SG&A expens e
(94.37)
(63.83)
(62.46)
‐33.8%
Other i ncome
1H15
104.3% 192.75
1H16
%YoY
249.27
‐2.1% (156.95) (126.28)
2016E YTD(% of 2016E)
29.3% 342.53
72.8%
‐19.5% (212.10)
59.5% 44.1%
1.17
3.34
0.72
‐38.8%
‐78.6% 3.60
4.05
12.5% 9.18
EBIT
43.56
21.41
105.62
142.5%
393.2% 39.40
127.04
222.5% 139.61
91.0%
Interes t expens e
(2.89)
(0.98)
‐87.6%
‐63.4% (5.45) (1.34)
‐75.5% (5.50)
24.3%
EBT
40.67
20.44
105.27
158.9%
415.1% 33.95
270.3% 134.11
93.7%
Ta x expens e
(7.19)
(3.84)
(19.90)
176.9%
418.2% (6.78) (23.74)
250.2% (26.82)
88.5%
Norm.profit
33.48
16.60
85.37
155.0%
414.4% 27.17
275.3% 107.29
95.0%
(0.36)
125.70 101.97
Net profit
33.48 16.60 85.37
155.0%
414.4% 27.17 101.97
275.3% 107.29
95.0%
EPS(Bt)
0.08 0.04 0.18
112.5%
393% 0.07 0.21
215.0% 0.22
95.7%
Gros s ma rgi n
46.2%
36.3%
37.9%
44.3%
37.4%
37.3%
EBIT ma rgi n
14.7%
9.5%
23.9%
9.1%
19.0%
15.2%
Norm.profi t ma rgi n
11.3%
7.4%
19.3%
6.2%
15.3%
11.7%
Net ma rgi n
11.3%
7.4%
19.3%
6.2%
15.3%
11.7%
Source: KT ZMICO Research Revise up earnings projections to reflect growth in all channels and better cost control We have revised up our earnings projections by 86‐119% in 2016‐18E to reflect the following factors. First, the sales are likely to beat the previous expectation due to the launch of new products with lower prices but the same cooling quality; the new products are expected to boost sales from all channels. Second, the gross profit margin is now anticipated at 37.3‐37.7%, down from 42% in 2015, thanks to the launch of new products that yield narrower margins than the existing products and higher exposure to retail shops and overseas distributors. Finally, SG&A to sales are now projected to fall to 23‐25% from 37% in 2015 thanks to the likelihood of higher revenue and marketing cost control (with more focus on online media). Figure 2: Key assumption changes List
New 918
Revenue GPM % SG&A to sales (%)
Core Net profit (Btmn) NPM (%)
2016E Old 808
37.3%
42.4%
23.1% 107.3 11.7%
34.18% 57.8 7.2%
%Change
New
2017E Old
13.6%
1,231
85.6%
2018E Old
%Change
New
929
32.3%
1,487
1,038
43.3%
37.6%
42.0%
37.7%
42.0%
24.5% 134.1 10.9%
33.81% 66.6 7.2%
101.4%
23.5% 175.1 11.8%
33.4% 80.3 7.7%
118.8%
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
%Change
More room for growth from modern trade and domestic distributors Sales revenue from retail customers through modern trade and authorized domestic distributors currently accounts for 41% and 20%, respectively, of total revenue. The firm’s products are now distributed in 245 modern trade outlets, mostly in HomePro, Makro, Megahome, Thai Wasadu, Global House, etc, as well as over 250 domestic distributors nationwide. We believe the firm will see further growth from these channels due to the following factors. First, it has begun to distribute products in 40 Tesco Lotus stores, with expected further expansion to a total of over 100 stores from early 2017E onwards. Second, the firm has collaborated with SINGER on marketing to customers in untapped segments. Finally, the firm has launched smaller and cheaper products while maintaining the same cooling quality.
Figure 3: Revenue breakdown
Figure 4: Number of branches in each channel no.branch
m.n. 1,487
1,600
800 700
1,400 1,200 918
1,000 800 600
459 305 45 68 134 58
400
227 30 200 56 126 15 ‐ 2555 Agent
70 93 139 157
636
203
118 109 137
175
273
1,231
286
240
225
200 416 297
493
336
45
500 43
400
560
2558 2559E Direct sale
22
37
100
192
144
12
39
2560E 2561E Modern trade
Source: KT ZMICO Research
250
283
200
0
2556 2557 Dealer
250
250
37 211
300
205
52
48
600
2012
400
360 112
2013
245
204
2014 2015 Dealer
Agent
2016E 2017E Modern trade
Source: KT ZMICO Research
More aggressive expansion in overseas markets KOOL’s revenue from authorized overseas distributors in 1H16 amounted to Bt137mn, growing by 137%YoY. The growth was driven by the rising heat as well as better brand awareness among consumers. The revenue from this distribution channel accounted for 20% of the total revenue in 1H16. Over 50% of overseas sales growth was contributed by sales in AEC countries with 37 distributors currently. Furthermore, the firm plans to authorize local distributors in South Africa and South America in order to offset the expected weak domestic performance during the low season in 2H. The firm is expected to increase the number of its efficient overseas distributors to 45‐52 branches in 2016‐18E. Finally, we expect the revenue contribution from overseas distributors to account for around 20‐22%.
Figure 5: PER (average 32.0x) and PBV band (average 8.6x) (X)
(X)
40
10.0 9.0
+2.0 S.D.
7.0
8.0
25
+3.0 S.D. +2.0 S.D.
6.0
+1.0 S.D.
4.0
Mar-16
Feb-16
Aug-16
Jul-16
Jun-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Jan-16
0
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Aug-16
-1.0 S.D.
0.0
Jul-16
1.0
Jun-16
2.0
-1.0 S.D.
5
Avg.
3.0
10
Jun-16
Avg.
May-16
15
+1.0 S.D.
5.0
Apr-16
20
Jan-16
30
+3.0 S.D.
Jan-16
35
2018E
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Gain (loss) from affiliates Extra Items Non‐controlling Net profit Reported EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories Investment PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity CASH FLOW (Btmn) Net income Non‐cash adjustment Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013
2014
2015
2016E
2017E
2018E
305 (171) 134 (130) 13 (7) 7 (3) 2 3 (0) 0 0 0 3 0.01 3 0.01 0.08
459 (260) 199 (159) 52 (8) 44 (6) 5 38 (7) 0 0 0 31 0.10 31 0.10 0.08
636 (373) 263 (252) 25 (9) 16 (8) 4 8 (0) 0 0 0 8 0.02 8 0.02 0.02
918 (576) 343 (212) 151 (11) 140 (6) 9 134 (27) 0 0 0 107 0.22 107 0.22 0.09
1,231 (768) 463 (302) 186 (13) 173 (6) 12 168 (34) 0 0 0 134 0.28 134 0.28 0.11
1,487 (927) 561 (350) 242 (16) 226 (7) 15 219 (44) 0 0 0 175 0.36 175 0.36 0.15
2013
2014
2015
2016E
2017E
2018E
2 42 106 0 25 40 215 91 0 130 70 85 215
1 54 172 0 38 55 320 135 0 211 90 109 320
104 84 231 0 58 70 547 86 2 221 120 326 547
56 98 414 0 68 69 654 100 0 256 120 399 654
73 131 500 0 81 70 785 100 0 306 120 479 785
86 159 608 0 95 70 952 120 0 368 120 584 952
2013
2014
2015
2016E
2017E
2018E
4 12 7 (56) (33) (7) (9) (16) 44 26 (23) 0 47 (3) (50) 1.74
45 1 8 (60) (6) (14) (18) (32) 44 20 (28) 0 36 (1) (38) (0.26)
9 21 9 (64) (25) (20) (6) (26) (54) 208 0 0 154 103 (51) (0.12)
107 0 11 (173) (55) (21) 0 (21) 12 8 (43) 0 (23) (100) (76) (0.13)
134 0 13 (69) 78 (27) 0 (27) 0 0 (54) 0 (54) (2) 51 (0.16)
175 0 16 (93) 98 (30) 0 (30) 20 0 (70) 0 (50) 18 68 0.11
2013
2014
2015
2016E
2017E
2018E
34.6% ‐63.7% ‐99.7% 44.0% 4.3% 2.1% 0.9% 0.9% 15.0%
50.2% 294.6% 615.6% 43.3% 11.4% 9.7% 6.8% 6.8% 18.3%
38.8% ‐51.8% ‐80.6% 41.4% 4.0% 2.5% 1.3% 1.3% 4.7%
44.3% 497.8% 1014.1% 37.3% 16.4% 15.2% 11.7% 11.7% 20.0%
34.0% 23.8% 25.0% 37.6% 15.2% 14.1% 10.9% 10.9% 20.0%
20.9% 29.5% 30.6% 37.7% 16.2% 15.2% 11.8% 11.8% 20.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, TPOLY, M‐CHAI, EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH, BCPG.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
