Brokers give thumbs up to Alumex IPO as Hayleys lists 10th subsidiary, first in 22 years
Wednesday, 5 March 2014 00:44
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Several brokers have recommended “buy” to the Alumex IPO officially opening tomorrow as Hayleys PLC completes a perfect 10 in listing its subsidiaries and its first in over two decades on the Colombo Bourse.
A leader in the aluminium extrusions industry, Alumex is in the market to raise Rs. 838 million, of which Rs. 250 million goes for the company’s expansion and Rs. 588 million to existing major shareholders (via offer for sale of vendor shares). The latter will continue to own 76% post-IPO.
The IPO in total is 59.8 million shares at Rs. 14 each consisting of 17.85 million shares (6% stake post-IPO) and 42 million shares (14% post-IPO).
Hayleys is listing Alumex, control of which it acquired in 2010 for Rs. 3 billion, to benefit from Budget-announced tax concessions of 50% tax saving for three consecutive years maintaining a 20% public float, as well as finance the setting up a powder coating plant thereby doubling capacity to 3600MT per annum and acquire die manufacturing equipment.
The previous Hayleys subsidiary to list via an IPO was Hayleys Exports in 1992.
Noting volume driven growth, Softlogic Stockbrokers has recommended “subscribe” to Alumex IPO.
“Following the takeover by Hayleys in 2010, Alumex Group’s growth has been on an upward trend backed by higher gross margins denoting 28% in FY13 cf. 17% in FY10. We expect earnings growth to be backed by robust volume growth with the commissioning of its powder coating plant adding 1,800 MT to be materialised during FY15E,” Softlogic said.
It said powder coating volumes grew at a CAGR of 24% over FY10-FY13 and FY14E-FY15E volume growth is projected to be driven by doubling capacity to 3,600 MT in its powder coating plant supported by the growth in infrastructure development and construction activities. Gross margins are expected to be sustained at current levels via shifting towards value added products with powder coated and wooden coated segments now taking up a higher proportion of total volume amidst stable aluminium prices expected as per a World Bank forecast.
“We expect Alumex to record earnings of Rs. 377 million during FY14E and Rs. 509 million during FY15E translating into PER of 11.1x and 8.2x respectively at its issue price of Rs. 14.0 cf. manufacturing sector trailing PER of 9.3x,” Softlogic Stockbrokers said.
Asia Securities said “We believe that the share is attractively priced at an issue price of Rs. 14 for a one year holding period.”
“The share is priced at a FY2015E P/E of 7.9X, which is a discount to the current sector, market and peer P/Es. Further, at a price of Rs. 14, we arrive at a FY2015E P/B of 2.5X, which is at a premium to the sector and market P/Bs. However, we believe that the share should trade at a further premium P/B due to the substantially higher than peer/market ROEs generated by the group,” Asia added.
Meanwhile, using DCF valuation (Ke – 15.3%, g – 5%), with relatively conservative assumptions, Asia arrives at an intrinsic value of Rs. 16.30 (16.4% upside potential). “We expect the company to go ahead with is relatively high dividend pay-out in the short to medium, as the low overall capacity utilisation would not necessitate large CAPEX investments in the short to medium term,” Asia said.
“Volatility in exchange rate/raw material price, competition from local players and cheap imports and inability to win large scale projects remain key risks to our estimates, recommendation and intrinsic value computation,” Asia added.
NDB Stockbrokers said as opposed to the manufacturing sector PER of 8.84X (based on the universe of stocks covered by us whereas according to CSE the sector PER is 12.9X), ALUM is priced (IPO price of Rs. 14.00) at a PER of 9.46X.
“We feel the manufacturing sector is currently undervalued compared to the broader market as the sector is trading below the market PER of 13.8X (based on the universe of stocks covered by us, according to the CSE the market PER is 15.6X). Therefore, we expect ALUM to be an attractive investment option for investors looking at diversifying investments into the manufacturing sector. As we anticipate the broader market to pick up as well, the counter could offer notable upside potential,” NDBS said.
