February 4, 2020 Diversifying, Expanding, Growing Chemicals ICI Pakistan Limited REP 300 Closing Price is as of 03-Feb-2020 We initiate coverage on ICI Pakistan Limited (ICI) with a Dec’20 target price of PKR 769/share, representing an upside of 13.6% from last day’s closing. Our investment case is hinged upon: Expansion in the company’s Soda Ash manufacturing facility to 500k tons per annum from current capacity of 425k tons per annum, by Jun’22. Diversification into a new business during FY19 with the company successfully commissioning the MasterBatch manufacturing facility, and Recent commissioning of NutriCo Morinaga (Private) Limited (a joint venture company between ICI Pakistan Limited, Morinaga Milk Industry Co. Limited and Unibrands (Private) Limited), a facility to manufacture infant and growing up formula products. ICI has a 51% stake in this venture and the plant has a manufacturing capacity of 12k tons per annum. Demand Pushed Capacity Expansion of Soda Ash Soda Ash is primarily consumed in glass, paper and detergent manufacturing. On the back of expected growth in demand of glass due to rise in construction activity, the company undertook expansion in its Soda Ash production capacity to 425K tons from 350K tons. Whereas, the container glass market is also growing. While population growth along with changing life style (urbanization) has triggered the demand for detergents. All these factors have noticeably contributed to an increase in demand of Soda Ash and therefore, ICI plans to further augment its capacity to 500k tons by Jun’22. Morinaga Infant Formula; Entering the Consumer Market During FY19, the company established a manufacturing facility for Morinaga infant formula. NutriCo Morinaga (Private) Limited, a subsidiary of ICI Pakistan (Holding: 51%), has been incorporated to manufacture 12,000 tons p.a. of infant formula. Diversification to Offset the PSF Underperformance During FY19, the company successfully commissioned the Masterbatch manufacturing facility. It is a colorant/pigment that is used in plastics and comes under the company’s Chemical and Agri Sciences business. As per management, the company is planning an expansion in next 5-6 months due to better than expected market response. In addition, the company has also signed an agreement with Huntsman Textile to manufacture and distribute textile effects products in Pakistan. This venture is expected to enhance the company’s profits going forward. Exhibit: 01 Valuation Snapshot FY19A FY20E FY21F FY22F EPS PKR 27.3 39.9 46.2 59.8 DPS PKR 9.0 20.0 23.0 30.0 P/E x 19.5 17.0 14.7 11.3 P/B x 2.3 2.7 2.4 2.0 Source: Company Financials, AHL Research BUY 769.0 676.7 13.6 Shares (mn) 92 403 3M 6M 12M 25.4 39.7 -7.1 126.4 69.5 43.0 728.1 728.1 728.1 529.4 436.6 436.6 Source: Bloomberg Analyst: Rao Aamir Ali F:+92 21 3242 0742 D:+92 21 3246 1106 ICI PA U pside (% ) C urrent Price Target Price (Dec'20) Recommendation Market Cap. (USD mn) www.arifhabibltd.com UAN: +92 21 111 245 111, Ext: 242 62,498 - Associated Companies Price Performance Major Shareholders Relative Performance Av g. Volume (000) High Price - PKR Low Price - PKR Return (% ) Market Cap. (PKR mn) E: [email protected]Top 25 Listed Companies Corporate Finance House of the Year: 2018 Best Domestic Equity House Best Equity Research Analyst: 2017 50% 60% 70% 80% 90% 100% 110% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 ICI KSE100
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
February 4, 2020
Diversifying, Expanding, Growing
Chemicals ICI Pakistan Limited REP 300
Closing Price is as of 03-Feb-2020
We initiate coverage on ICI Pakistan Limited (ICI) with a Dec’20 target price of PKR
769/share, representing an upside of 13.6% from last day’s closing. Our investment
case is hinged upon:
Expansion in the company’s Soda Ash manufacturing facility to 500k tons per
annum from current capacity of 425k tons per annum, by Jun’22.
Diversification into a new business during FY19 with the company successfully
commissioning the MasterBatch manufacturing facility, and
Recent commissioning of NutriCo Morinaga (Private) Limited (a joint venture
company between ICI Pakistan Limited, Morinaga Milk Industry Co. Limited and
Unibrands (Private) Limited), a facility to manufacture infant and growing up
formula products. ICI has a 51% stake in this venture and the plant has a
manufacturing capacity of 12k tons per annum.
Demand Pushed Capacity Expansion of Soda Ash
Soda Ash is primarily consumed in glass, paper and detergent manufacturing. On the back
of expected growth in demand of glass due to rise in construction activity, the company
undertook expansion in its Soda Ash production capacity to 425K tons from 350K tons.
Whereas, the container glass market is also growing. While population growth along with
changing life style (urbanization) has triggered the demand for detergents. All these factors
have noticeably contributed to an increase in demand of Soda Ash and therefore, ICI plans
to further augment its capacity to 500k tons by Jun’22.
Morinaga Infant Formula; Entering the Consumer Market
During FY19, the company established a manufacturing facility for Morinaga infant
formula. NutriCo Morinaga (Private) Limited, a subsidiary of ICI Pakistan (Holding: 51%),
has been incorporated to manufacture 12,000 tons p.a. of infant formula.
Diversification to Offset the PSF Underperformance
During FY19, the company successfully commissioned the Masterbatch manufacturing
facility. It is a colorant/pigment that is used in plastics and comes under the company’s
Chemical and Agri Sciences business. As per management, the company is planning an
expansion in next 5-6 months due to better than expected market response. In addition,
the company has also signed an agreement with Huntsman Textile to manufacture and
distribute textile effects products in Pakistan. This venture is expected to enhance the
Total Assets 45,013 49,441 50,560 51,324 52,418 Net Profit Margin % 6.6 4.3 5.6 5.3 6.5
Source: Company Financials, AHL Research , * Attributable to owners of the holding company
ICI Pakistan Limited Page 21
ICI – Chemicals
Disclaimer
Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in this research report accurately reflect the
personal views of the analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or
otherwise) in the subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other service(s) that AHL is offering. Analyst(s) are not
subject to the supervision or control of any employee of AHL’s non-research departments, and no personal engaged in providing non-research services have any influence or
control over the compensatory evaluation of the Analyst(s).
Equity Research Ratings
Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as Dec 2020 for Target Price. In addition, return
excludes all type of taxes. For more details, kindly refer the following table;
Rating Description
BUY Upside* of subject security(ies) is more than +10% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -10% and +10% from last closing of market price(s)
SELL Upside* of subject security(ies) is less than -10% from last closing of market price(s)
* Upside for Power Generation Companies (Ex. KEL) is upside plus dividend yield.
Equity Valuation Methodology
AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
Discounted Cash Flow (DCF)
Dividend Discounted Model (DDM)
Sum of the Parts (SoTP)
Justified Price to Book (JPTB)
Reserved Base Valuation (RBV)
Risks
The following risks may potentially impact our valuations of subject security (ies);
Market risk
Interest Rate Risk
Exchange Rate (Currency) Risk
This document has been prepared by Research analysts at Arif Habib Limited (AHL). This document does not constitute an offer or solicitation for the purchase or sale of any
security. This publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated investors that understand the risks
involved in investing in equity securities. The information contained herein is based upon publicly available data and sources believed to be reliable. While every care was taken
to ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In particular, the report takes no account of the
investment objectives, financial situation and particular needs of investors. The information given in this document is as of the date of this report and there can be no assurance
that future results or events will be consistent with this information. This information is subject to change without any prior notice. AHL reserves the right to make modifications
and alterations to this statement as may be required from time to time. However, AHL is under no obligation to update or keep the information current. AHL is committed to
providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Past performance is
not necessarily a guide to future performance. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment
decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at
an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his or her
own advisors to determine the merits and risks of such investment. AHL or any of its affiliates shall not be in any way responsible for any loss or damage that may be arise to any
person from any inadvertent error in the information contained in this report.