Brief Equities Bottom-Up: Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity and more

In this briefing:

1. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity
2. Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA
3. Coromandel International: Doing the Fieldwork Before the Harvest.
4. HKT Benefits from Price Increases and Offers Strong Dividend Support.
5. PRM: Thai Largest Tanker Fleets Assured of Consistent Growth

1. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity

• The 4Q2018 results suggest that it is a right decision to close out direct automobile sales and start auto loan.
• The 4Q2018 results also suggest that ATHM has successfully completed the post-acquisition integration after three years.
• Peer companies’P/E ratios suggest ATHM is fairly valued, but we believe it will be a good opportunity to accumulate if the stock price falls.

2. Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA

Procurri Corporation (PROC SP) released FY18 results which showed the company growing revenues to 220M SGD (+21% vs FY17), EBITDA to 19.7M SGD (+185% vs FY17), PBT to 10.1M SGD (vs 2.3M loss in 2017) and a small net profit of 5.3M SGD which was artificially low because of an astronomical 47% tax rate. The high tax rate should reverse in 2H19 which would show the reported profitability of Procurri improve substantially. 

Procurri remains deep value trading at just 4.4x 2018 EV/EBITDA and 0.4x 2018 EV/Sales. If we adjust the FY18 net profit figure(assume 30% tax rate vs 47%) the shares trade at a P/E multiple of just 13x.

The shareholder register of Procurri has seen a dramatic change YTD with multiple announcements on SGX. The most significant development is the entry of Singapore PE fund Novo Tellus acquiring a 29.6% stake on 19/2/19. Consequently this means that the biggest corporate overhang on Procurri (read: the control by Declout Ltd (DLL SP) ) is now almost over with their stake reduced to 17% from 47% previously.

Given the well-publicized track record of Novo Tellus at SGX listed Aem Holdings (AEM SP) the question is if Novo Tellus sees another multi-bagger in the making?

While a “10-bagger” type return like AEM is unlikely at Procurri, doubling the market cap from 90M to 180M SGD would not be impossible as Procurri continues to grow in FY19 and the depressed multiple expands modestly.

3. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

4. HKT Benefits from Price Increases and Offers Strong Dividend Support.

HKT (6823 HK) reported 2H18 EBITDA slightly below our estimates but free cash flow was in line and allowed a 5% increase in the dividend (to a 5.7% yield). We look for the dividend to grow gradually going forward as management’s focus is once again on returns. We saw that with the move by HKT to raise prices in September 2018 which is already helping mobile top-line trends.

Despite HKBN (1310 HK) and China Mobile HK not following, the pre-paid segment does not appear to be suffering. Management has not ruled out further tariff increases, and they clearly want to see more rational competition in the run up to 5G (and to allow for dividend growth).

Growing cash flow has allowed management to maintain an attractive dividend policy which we see as supportive for the group overall. The improved monetization in mobile and continued efficiencies is likely to support future cash flow growth. Given the encouraging mobile outlook we have lifted our target slightly HKD13.8 from HKD13.6), and maintain a BUY on the stock. For a discussion on parent PCCW (8 HK) and the stub trade, please see David Blennerhassett ‘s recent note: StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating.

5. PRM: Thai Largest Tanker Fleets Assured of Consistent Growth

We initiate coverage of PRM with a BUY rating, based on a target price of Bt7.70, derived from a PEG ratio of 0.9x, which is the average for the Asia ex-japan transportation sector, implying 22.0x PE’19E.

The story:

• Secured revenue from domestic trading business
• IMO 2020 implementation to propel floating storage demand
• Recovery in T/C rate should prompt international trading turnaround

Risks:  Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations