Thai Metal Trade - Global Alliance Partners
Thai Metal Trade Buy (16E TP Bt13.60) Company Update
Close Bt10.90
Steel
Earning upgrade/Earnings downgrade/Overview unchanged
June 14, 2016
2016E earnings growth of 141% Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
1.300
0.800
KT ZMICO vs. consensus Share data
36.2%
25.0%
Reuters / Bloomberg
TMT.BK/TMT TB
Paid‐up Shares (m)
435.38
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
5.00/135.00
Foreign limit / actual (%)
49.00/0.36
52 week High / Low (Bt)
11.70/8.30
Avg. daily T/O (shares 000) NVDR (%)
265.00 0.56
Estimated free float (%)
21.29
Beta
0.31
URL
www.thaimetaltrade.com
CGR
Anti‐corruption
Level 2 (Declared)
Phornsri Laysanitsaerekul Analyst, no. 17621 [email protected] 66 (0) 2624‐6258
2016E earnings expected to jump 141% with dividend yield of over 10% We reinitiate TMT with a “BUY” rating and the DDM‐based target price of 13.60/share, imply 8x PER. Our recommendation is underpinned by the following favorable factors. First, the tight domestic supply currently helps to support the business of TMT, which is an integrated steel service provider who has high potential both in terms of raw material management and a wide range of products. Second, 2016E earnings are likely to jump by 141%, hitting a new high. Third, 2Q16 earnings are likely to grow well by 225%YoY and 21%QoQ. Fourth, the firm’s financial position is strong with net DER of 0.8x. Finally, the firm is expected to offer a dividend yield of 11% for 2016E and the current share price implies potential upside of 25%. 2Q16 earnings likely to grow by 225%YoY and 21%QoQ We expect TMT to report 2Q16 net profit of Bt339mn. While its sales volume is projected to fall by 14%QoQ to 145,000 tons (+4%YoY) due to a series of public holidays, the average selling price is expected to rise by 10%QoQ to Bt20.7/kg (‐2%YoY) and the firm still has good cost management thanks to low‐cost imported raw material. We thus expect the firm’s gross profit margin to widen to 18% vs. 8.1% in 2Q15 and 14.7% in 1Q16. This, combined with other expected expenses, prompts us to project strong earnings growth of 225%YoY and 21%QoQ in 2Q16. Promising 2H16E business outlook While the steel price may weaken in 2H16, the extent of the impact may not be significant because major producers have not run at their full capacity. Meanwhile, there is an obstacle on the import side as the government may decide to collect some import fees to prevent operators from importing more steel; hence, operators are now refraining from importing new steel. Expect record‐high growth of 141% in 2016E 2016E earnings are likely to hit a new high at Bt773mn, up 141%, based on i) assumed sales volume of 624,000 tons (up 10% vs. the firm’s target of 660,000 tons, +15%); ii) an expected average selling price of Bt20.4/kg (flat YoY); and iii) a gross profit margin assumption of 11.5% (vs. 7.2% in 2015). For 2H16E, we expect the gross profit margin to normalize at 7‐8% (vs. 16.3% in 1H16) and a profit of Bt70‐80mn/quarter. Dividend yield of over 10% for 2016E The firm’s financial position is strong, with a D/E ratio of 0.8x. Assuming a dividend payout of 65% (10‐year average at 76%), we expect TMT to offer a DPS of Bt1.15, implying a yield of 11% for 2016E. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS grw (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2013 13,055 440 1.01 ‐3% 0.80 5.01 13,055 2013 10.78 3.94 2.17 7.3% 20.7% 139.6%
2014 12,251 334 0.77 ‐24% 0.65 4.98 12,251 2014 14.20 4.48 2.19 6.0% 15.4% 114.7%
2015 11,569 321 0.74 ‐4% 0.65 5.07 11,569 2015 14.81 4.69 2.15 6.0% 14.7% 79.9%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2016E 12,711 773 1.77 141% 1.15 6.19 12,711 2016E 6.14 1.37 1.76 10.6% 31.5% 76.0%
2017E 14,094 438 1.00 ‐43% 0.80 6.04 14,094 2017E 10.85 2.05 1.80 7.4% 16.4% 94.0%
Domestic HRCs price may weaken in 2H16 but with an insignificant impact The domestic hot rolled coil (HRCs) price may weaken in 2H16 as the global price has fallen in June; however, we do not expect a significant impact on domestic price, as the domestic supply of HRCs remains uncertain with producers having yet to run at full capacity. Meanwhile, imports are still seeing an obstacle from the government. The government may consider collecting import fees to cope with dumping in steel markets in several countries (e.g., Brazil, Egypt, Iran) and increasing import taxes on HRCs from Turkey. Hence, importers are now refraining from importing steel, resulting in uncertainty over the domestic steel outlook. Figure 1: 2Q16 and 1H16 earnings projections Consolidated Profit and Loss FY Dec (Btm) Revenue Gross profit EBITDA Interest Expenses Net other income Income tax Forex gain (loss) Other extraordinary items Gn(Ls) from affiliates Net profit (loss) Normalized profit (loss) Reported EPS (Bt)
2Q15 1Q16 2Q16E %YoY %QoQ 1H15 1H16E %YoY 2015 2,926 3,163 2,998 2% ‐5% 6,075 6,161 1% 11,569 237 465 540 128% 16% 427 1004 135% 833 165 386 461 179% 19% 287 846 195% 612 (17) (10) (10) ‐40% 0% (32) (20) ‐39% (60) 17 14 14 ‐19% 0% 34 27 ‐19% 67 (26) (69) (85) 221% 22% (44) (154) 250% (84) 0 0 0 nm nm 0 0 nm 0 0 0 0 nm nm 0 0 nm 0 0 0 0 nm nm 0 0 nm 0 104 279 339 225% 21% 174 618 255% 321 104 279 339 225% 21% 174 618 255% 321 0.24 0.64 0.77 224% 21% 0.40 1.41 254% 0.73
2016E 12,711 1462 1213 (55) 43 (193) 0 0 0 773 773 1.76
Gross margin EBITDA margin Net profit margin Current ratio (x) Interest coverage (x) Effective tax rate
8.1% 5.6% 3.6% 1.12 10.00 20.2%
11.5% 9.5% 6.1% 0.00 21.93 20.0%
14.7% 12.2% 8.8% 0.00 39.10 19.9%
18.0% 15.4% 11.3% 0.00 46.70 20.0%
7.0% 4.7% 2.9% 1.18 8.86 20.2%
16.3% 13.7% 10.0% 0.00 42.90 19.9%
7.2% 5.3% 2.8% 0.00 10.28 20.7%
YTD %YoY (% of 2016E) 10% 48% 75% 69% 98% 70% ‐7% 36% ‐36% 64% 131% 80% nm nm nm nm nm nm 141% 80% 141% 80% 141% 80%
Source: TMT, KT Z Research Figure 2 : Quarterly sales volume and gross profit margin projections Sales volume (ton)
Gross margin
TMT's quarterly sales volume & GM
20.0%
180,000 Sales volumes (ton)
18.0%
Gross margin (%)
160,000
18.0% 16.0%
140,000
14.7% 14.0% 120,000
13.0% 11.0%
12.0%
100,000 9.8% 80,000
6.9%
60,000
8.1% 7.7% 7.1%
7.0%
7.6%
6.8% 7.0% 6.0%
5.1%
40,000
10.0%
8.5%
8.6% 8.2%
8.6%
6.0% 6.7% 6.0%
8.0% 6.0% 4.0%
2Q16E
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
0.0%
3Q11
0
2Q11
2.0%
1Q11
20,000
Source: TMT, KT Z Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3 : PER & PBV Band
PBV Band
PER Band (X)
(X)
40
3.5
35
3.0
30 +2 S.D.
2.5
25
2.0
20 +1 S.D. +0.5 S.D. 15 Avg. 10 -0.5 S.D. 5 -1 S.D.
1.5 1.0
+1 S.D. Avg. -1 S.D. -2 S.D.
Source: SET, KT Z Research Figure 4: HRC price (CIS market) US$/ton
Hot Rolled Coil price (CIS market)
900 800 700 600 500 400 300 200 100
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16
-
Source: Bloomberg, KT Z Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Jun-16
Dec-14
Sep-15
Apr-14
Jul-13
Oct-12
Feb-12
Aug-10
May-11
Nov-09
Mar-09
Jun-08
Sep-07
0.0 Jan-07
Jun-16
Dec-14
Sep-15
Jul-13
Apr-14
Oct-12
Feb-12
May-11
Aug-10
Nov-09
Jun-08
Mar-09
Sep-07
+2 S.D.
0.5
0 Jan-07
+3 S.D.
Financial Table PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Extra items Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2013 13,055 (11,983) 1,072 (464) 728 (120) 608 (99) 0 45 553 (112) 0 0 440 1.01 1.01 440 1.01 0.80
2014 12,251 (11,382) 869 (416) 595 (142) 453 (79) 0 46 419 (85) 0 0 334 0.77 0.77 334 0.77 0.65
2015 11,569 (10,736) 833 (436) 612 (215) 397 (60) 0 67 404 (84) 0 0 321 0.74 0.74 321 0.74 0.65
2016E 12,711 (11,249) 1,462 (483) 1,213 (234) 979 (55) 0 43 966 (193) 0 0 773 1.77 1.77 773 1.77 1.15
2017E 14,094 (13,037) 1,057 (493) 814 (250) 564 (63) 0 46 547 (109) 0 0 438 1.00 1.00 438 1.00 0.80
BALANCE SHEET (Btm) Cash and equivalents Inventories Investment PP&E‐net Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity
2013 192 1,777 21 1,523 5,979 3,232 9 3,795 0 2,183 5,979
2014 262 1,282 56 1,513 5,245 2,741 9 3,076 0 2,169 5,245
2015 368 834 56 1,557 4,620 2,125 6 2,413 0 2,207 4,620
2016E 250 1,267 56 1,575 5,343 2,300 0 2,646 0 2,697 5,342
2017E 225 1,468 56 1,537 5,711 2,700 0 3,079 0 2,632 5,711
CASH FLOW (Btm) EBIT Depreciation & amortization Change in working capital FX, non‐cash adjustment & others 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)
2013 608 120 (576) (223) (71) (260) 2 (257) 686 7 (343) (36) 314 (14) ‐331 ‐0.76
2014 453 142 725 (241) 1,080 (168) (0) (168) (534) 0 (349) 40 (843) 69 912 2.09
2015 397 215 702 (104) 1,210 (192) (9) (201) (619) 0 (283) (1) (903) 106 1,018 2.34
2016E 979 234 (765) (203) 245 (252) (0) (252) 169 0 (283) 2 (112) (119) ‐7 ‐0.02
2017E 564 250 (404) (123) 287 (212) (0) (212) 400 0 (502) 3 (100) (25) 75 0.17
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 26.6 14.6 448.4 8.2 5.6 4.7 3.4 3.4 (20.3)
2014 (6.2) (18.3) (3.1) 7.1 4.9 3.7 2.7 2.7 (20.2)
2015 (5.6) 2.8 (24.1) 7.2 5.3 3.4 2.8 2.8 (20.7)
2016E 9.9 98.2 (4.1) 11.5 9.5 7.7 6.1 6.1 (20.0)
2017E 10.9 (32.9) 141.1 7.5 5.8 4.0 3.1 3.1 (20.0)
FINANCIAL QUALITY Total interest bearing debt (Btm) Total debt to capital employed (x) Net debt (Cash) (Btm) Net debt to equity (x) Interest coverage (x)
2,598 0.48 2,392 1.16 7.32
3,240 0.66 3,048 1.40 7.50
2,750 0.63 2,487 1.15 10.28
2,131 0.43 1,763 0.80 21.93
2,300 0.43 2,050 0.76 13.02
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, PLE, TPOLY KT ZMICO is a co‐underwriter of TPBI.
Anti‐corruption Progress Indicator 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 BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
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th
th
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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.
Close Bt10.90
Steel
Earning upgrade/Earnings downgrade/Overview unchanged
June 14, 2016
2016E earnings growth of 141% Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
1.300
0.800
KT ZMICO vs. consensus Share data
36.2%
25.0%
Reuters / Bloomberg
TMT.BK/TMT TB
Paid‐up Shares (m)
435.38
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
5.00/135.00
Foreign limit / actual (%)
49.00/0.36
52 week High / Low (Bt)
11.70/8.30
Avg. daily T/O (shares 000) NVDR (%)
265.00 0.56
Estimated free float (%)
21.29
Beta
0.31
URL
www.thaimetaltrade.com
CGR
Anti‐corruption
Level 2 (Declared)
Phornsri Laysanitsaerekul Analyst, no. 17621 [email protected] 66 (0) 2624‐6258
2016E earnings expected to jump 141% with dividend yield of over 10% We reinitiate TMT with a “BUY” rating and the DDM‐based target price of 13.60/share, imply 8x PER. Our recommendation is underpinned by the following favorable factors. First, the tight domestic supply currently helps to support the business of TMT, which is an integrated steel service provider who has high potential both in terms of raw material management and a wide range of products. Second, 2016E earnings are likely to jump by 141%, hitting a new high. Third, 2Q16 earnings are likely to grow well by 225%YoY and 21%QoQ. Fourth, the firm’s financial position is strong with net DER of 0.8x. Finally, the firm is expected to offer a dividend yield of 11% for 2016E and the current share price implies potential upside of 25%. 2Q16 earnings likely to grow by 225%YoY and 21%QoQ We expect TMT to report 2Q16 net profit of Bt339mn. While its sales volume is projected to fall by 14%QoQ to 145,000 tons (+4%YoY) due to a series of public holidays, the average selling price is expected to rise by 10%QoQ to Bt20.7/kg (‐2%YoY) and the firm still has good cost management thanks to low‐cost imported raw material. We thus expect the firm’s gross profit margin to widen to 18% vs. 8.1% in 2Q15 and 14.7% in 1Q16. This, combined with other expected expenses, prompts us to project strong earnings growth of 225%YoY and 21%QoQ in 2Q16. Promising 2H16E business outlook While the steel price may weaken in 2H16, the extent of the impact may not be significant because major producers have not run at their full capacity. Meanwhile, there is an obstacle on the import side as the government may decide to collect some import fees to prevent operators from importing more steel; hence, operators are now refraining from importing new steel. Expect record‐high growth of 141% in 2016E 2016E earnings are likely to hit a new high at Bt773mn, up 141%, based on i) assumed sales volume of 624,000 tons (up 10% vs. the firm’s target of 660,000 tons, +15%); ii) an expected average selling price of Bt20.4/kg (flat YoY); and iii) a gross profit margin assumption of 11.5% (vs. 7.2% in 2015). For 2H16E, we expect the gross profit margin to normalize at 7‐8% (vs. 16.3% in 1H16) and a profit of Bt70‐80mn/quarter. Dividend yield of over 10% for 2016E The firm’s financial position is strong, with a D/E ratio of 0.8x. Assuming a dividend payout of 65% (10‐year average at 76%), we expect TMT to offer a DPS of Bt1.15, implying a yield of 11% for 2016E. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm EPS (Bt) Norm EPS grw (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2013 13,055 440 1.01 ‐3% 0.80 5.01 13,055 2013 10.78 3.94 2.17 7.3% 20.7% 139.6%
2014 12,251 334 0.77 ‐24% 0.65 4.98 12,251 2014 14.20 4.48 2.19 6.0% 15.4% 114.7%
2015 11,569 321 0.74 ‐4% 0.65 5.07 11,569 2015 14.81 4.69 2.15 6.0% 14.7% 79.9%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2016E 12,711 773 1.77 141% 1.15 6.19 12,711 2016E 6.14 1.37 1.76 10.6% 31.5% 76.0%
2017E 14,094 438 1.00 ‐43% 0.80 6.04 14,094 2017E 10.85 2.05 1.80 7.4% 16.4% 94.0%
Domestic HRCs price may weaken in 2H16 but with an insignificant impact The domestic hot rolled coil (HRCs) price may weaken in 2H16 as the global price has fallen in June; however, we do not expect a significant impact on domestic price, as the domestic supply of HRCs remains uncertain with producers having yet to run at full capacity. Meanwhile, imports are still seeing an obstacle from the government. The government may consider collecting import fees to cope with dumping in steel markets in several countries (e.g., Brazil, Egypt, Iran) and increasing import taxes on HRCs from Turkey. Hence, importers are now refraining from importing steel, resulting in uncertainty over the domestic steel outlook. Figure 1: 2Q16 and 1H16 earnings projections Consolidated Profit and Loss FY Dec (Btm) Revenue Gross profit EBITDA Interest Expenses Net other income Income tax Forex gain (loss) Other extraordinary items Gn(Ls) from affiliates Net profit (loss) Normalized profit (loss) Reported EPS (Bt)
2Q15 1Q16 2Q16E %YoY %QoQ 1H15 1H16E %YoY 2015 2,926 3,163 2,998 2% ‐5% 6,075 6,161 1% 11,569 237 465 540 128% 16% 427 1004 135% 833 165 386 461 179% 19% 287 846 195% 612 (17) (10) (10) ‐40% 0% (32) (20) ‐39% (60) 17 14 14 ‐19% 0% 34 27 ‐19% 67 (26) (69) (85) 221% 22% (44) (154) 250% (84) 0 0 0 nm nm 0 0 nm 0 0 0 0 nm nm 0 0 nm 0 0 0 0 nm nm 0 0 nm 0 104 279 339 225% 21% 174 618 255% 321 104 279 339 225% 21% 174 618 255% 321 0.24 0.64 0.77 224% 21% 0.40 1.41 254% 0.73
2016E 12,711 1462 1213 (55) 43 (193) 0 0 0 773 773 1.76
Gross margin EBITDA margin Net profit margin Current ratio (x) Interest coverage (x) Effective tax rate
8.1% 5.6% 3.6% 1.12 10.00 20.2%
11.5% 9.5% 6.1% 0.00 21.93 20.0%
14.7% 12.2% 8.8% 0.00 39.10 19.9%
18.0% 15.4% 11.3% 0.00 46.70 20.0%
7.0% 4.7% 2.9% 1.18 8.86 20.2%
16.3% 13.7% 10.0% 0.00 42.90 19.9%
7.2% 5.3% 2.8% 0.00 10.28 20.7%
YTD %YoY (% of 2016E) 10% 48% 75% 69% 98% 70% ‐7% 36% ‐36% 64% 131% 80% nm nm nm nm nm nm 141% 80% 141% 80% 141% 80%
Source: TMT, KT Z Research Figure 2 : Quarterly sales volume and gross profit margin projections Sales volume (ton)
Gross margin
TMT's quarterly sales volume & GM
20.0%
180,000 Sales volumes (ton)
18.0%
Gross margin (%)
160,000
18.0% 16.0%
140,000
14.7% 14.0% 120,000
13.0% 11.0%
12.0%
100,000 9.8% 80,000
6.9%
60,000
8.1% 7.7% 7.1%
7.0%
7.6%
6.8% 7.0% 6.0%
5.1%
40,000
10.0%
8.5%
8.6% 8.2%
8.6%
6.0% 6.7% 6.0%
8.0% 6.0% 4.0%
2Q16E
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
0.0%
3Q11
0
2Q11
2.0%
1Q11
20,000
Source: TMT, KT Z Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3 : PER & PBV Band
PBV Band
PER Band (X)
(X)
40
3.5
35
3.0
30 +2 S.D.
2.5
25
2.0
20 +1 S.D. +0.5 S.D. 15 Avg. 10 -0.5 S.D. 5 -1 S.D.
1.5 1.0
+1 S.D. Avg. -1 S.D. -2 S.D.
Source: SET, KT Z Research Figure 4: HRC price (CIS market) US$/ton
Hot Rolled Coil price (CIS market)
900 800 700 600 500 400 300 200 100
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16
-
Source: Bloomberg, KT Z Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Jun-16
Dec-14
Sep-15
Apr-14
Jul-13
Oct-12
Feb-12
Aug-10
May-11
Nov-09
Mar-09
Jun-08
Sep-07
0.0 Jan-07
Jun-16
Dec-14
Sep-15
Jul-13
Apr-14
Oct-12
Feb-12
May-11
Aug-10
Nov-09
Jun-08
Mar-09
Sep-07
+2 S.D.
0.5
0 Jan-07
+3 S.D.
Financial Table PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Extra items Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2013 13,055 (11,983) 1,072 (464) 728 (120) 608 (99) 0 45 553 (112) 0 0 440 1.01 1.01 440 1.01 0.80
2014 12,251 (11,382) 869 (416) 595 (142) 453 (79) 0 46 419 (85) 0 0 334 0.77 0.77 334 0.77 0.65
2015 11,569 (10,736) 833 (436) 612 (215) 397 (60) 0 67 404 (84) 0 0 321 0.74 0.74 321 0.74 0.65
2016E 12,711 (11,249) 1,462 (483) 1,213 (234) 979 (55) 0 43 966 (193) 0 0 773 1.77 1.77 773 1.77 1.15
2017E 14,094 (13,037) 1,057 (493) 814 (250) 564 (63) 0 46 547 (109) 0 0 438 1.00 1.00 438 1.00 0.80
BALANCE SHEET (Btm) Cash and equivalents Inventories Investment PP&E‐net Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity
2013 192 1,777 21 1,523 5,979 3,232 9 3,795 0 2,183 5,979
2014 262 1,282 56 1,513 5,245 2,741 9 3,076 0 2,169 5,245
2015 368 834 56 1,557 4,620 2,125 6 2,413 0 2,207 4,620
2016E 250 1,267 56 1,575 5,343 2,300 0 2,646 0 2,697 5,342
2017E 225 1,468 56 1,537 5,711 2,700 0 3,079 0 2,632 5,711
CASH FLOW (Btm) EBIT Depreciation & amortization Change in working capital FX, non‐cash adjustment & others 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)
2013 608 120 (576) (223) (71) (260) 2 (257) 686 7 (343) (36) 314 (14) ‐331 ‐0.76
2014 453 142 725 (241) 1,080 (168) (0) (168) (534) 0 (349) 40 (843) 69 912 2.09
2015 397 215 702 (104) 1,210 (192) (9) (201) (619) 0 (283) (1) (903) 106 1,018 2.34
2016E 979 234 (765) (203) 245 (252) (0) (252) 169 0 (283) 2 (112) (119) ‐7 ‐0.02
2017E 564 250 (404) (123) 287 (212) (0) (212) 400 0 (502) 3 (100) (25) 75 0.17
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 26.6 14.6 448.4 8.2 5.6 4.7 3.4 3.4 (20.3)
2014 (6.2) (18.3) (3.1) 7.1 4.9 3.7 2.7 2.7 (20.2)
2015 (5.6) 2.8 (24.1) 7.2 5.3 3.4 2.8 2.8 (20.7)
2016E 9.9 98.2 (4.1) 11.5 9.5 7.7 6.1 6.1 (20.0)
2017E 10.9 (32.9) 141.1 7.5 5.8 4.0 3.1 3.1 (20.0)
FINANCIAL QUALITY Total interest bearing debt (Btm) Total debt to capital employed (x) Net debt (Cash) (Btm) Net debt to equity (x) Interest coverage (x)
2,598 0.48 2,392 1.16 7.32
3,240 0.66 3,048 1.40 7.50
2,750 0.63 2,487 1.15 10.28
2,131 0.43 1,763 0.80 21.93
2,300 0.43 2,050 0.76 13.02
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, PLE, TPOLY KT ZMICO is a co‐underwriter of TPBI.
Anti‐corruption Progress Indicator 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 BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
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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.
