ALUM - Corporate Update - STRONG BUY - 20 09 16

ALUMEX PLC

Corporate Update – STRONG BUY

Current Price: LKR 20.0 Fair Value: LKR 25.5

“To shine brighter in FY18E”

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Alumex PLC, a subsidiary of Hayleys PLC, is expected to grow its earnings potential to achieve a CAGR of 24% FY16-FY19E. ALUM is expected to grow its earnings mainly through its revenue increase and exploiting the static growth in global prices of its key raw material, aluminium. Expected revenue generation is attributing to construction boom in the country and increase in capacity leading to growth in volumes in its main product as well as new products. Net profit margins for FY16-FY18E are expected to rise on the back of improved operating profits with increasing revenues and cost efficiencies. FC Research expect ALUM to provide a return of 25.8% at LKR 20.0. STRONG BUY

Revenue driven by construction boom and capacity expansion: ALUM’s revenue is expected to grow at a CAGR of c.16% through FY16-FY19E. Revenue is expected to grow with increase in volumes which is expected to arise as a result of emerging construction boom in the country and expansion of ALUM’s capacity to cater to the demands in the commercial and the residential sector. ALUM is also expected to gain a competitive advantage with its obtaining products certified by United Kingdom Accreditation Service.

Static movement in global aluminium prices to improve earnings: Global aluminium prices have been moving around USD 1,500/MT since 2015. The static movement in aluminium prices will positively reflect on ALUM’s cost of sales leading to improved net earnings. Net earnings are to be recorded at c. LKR 700Mn for FY17E, a growth of 19% over FY16.

ALUM to provide a 25.8% return in FY18E: FC Research expect ALUM to achieve a fair value of LKR 25.5 providing an annualized return of 25.8%. [DCF based LKR 23.9 and PER based LKR 27.2]. FY17E fair value stands at LKR 20.3. [DCF based LKR 19.5 and PER based LKR 21.1].

Risks associated: ALUM is currently exposed to the exchanged rate risk and global aluminium price volatility. Net earnings of ALUM are subject to change if exchange rate depreciates further and global aluminium prices commence to rise from current levels (USD 1,463/MT-2016E).


Disclosure on Shareholding:

First Capital Equities (Pvt) Ltd nor its entities have traded in the shares in the three trading days prior to this document, and will not trade in the shares for three trading days following the issue of this document.