External broker reports(aggregated public sources), Topline Securities

Topline Securities

Topline Securities is one of the fastest growing brokerage houses in Pakistan. It has strong equity brokerage, economic / equity research, mutual fund distribution, commodity trading and corporate finance & advisory functions. Content available is external broker reports authored by a third party outside the Smartkarma network and has been aggregated by an online aggregator through publicly available sources and is displayed by Smartkarma in this format for user's convenience and general informational purposes only. Content does not constitute investment or financial advice and Smartkarma makes no representation or warranty regarding its accuracy or contents. Original third party author retains all copyright and other proprietary rights in the content. Access or use of third party links not controlled by Smartkarma are at the user's own risk.

External broker reports(aggregated public sources)

Equity Bottom-Up

International Industries / Equity Bottom-Up

<ul>
<li>We revise down our earnings estimates of International Steel (ISL) post 1) our survey of Karachi steel market to understand local/imported sales dynamics &amp; pricing differences and 2) lower than estimated 1QFY19 result.</li>
<li>We expect ISL to post EPS of Rs9.2/9.9 for FY19/20, down on average by 28% from our earlier estimates.</li>
<li>However, we maintain our ‘Buy’ call on ISL (the company has lost around 25% in its share price in 2018YTD) as our DCF based Dec-2019 target price of Rs95 offers total return of 21% (including dividend yield of 6%) from its last close.</li>
<li>During our visit to steel market we found imported Cold Rolled Coils (CRC) and Hot-dip Galvanize Coil (HDGC) being sold from various countries. This is in-line with our view that imported steel will continue to be sold in local market. Please refer to our report titled <strong><em>‘International Steels (ISL): Earnings revised downward, ‘BUY’ maintained’</em></strong>, dated Jul 5, 2018.</li>
<li>Continuation of imported CRC/HDGC coupled with their discounted prices have led us to revisit our volumetric assumption of ISL. We have cut down our FY19/20 utilization assumption of ISL to 60/62% from earlier 75/75%.   </li>
<li>We continue to hold our assumption of local manufacturers’ inability to pass on hike in domestic input cost factors like gas prices. Recent hike of 30% hike in gas tariff is likely to increase ISL’s cost by around Rs300mn, translating into negative impact of 0.5ppt on its GP margins.</li>
<li>We have assumed gas price hike of 10% and 8% in FY20 and FY21, respectively. This will reflect 0.2ppt decline in the company’s GP margin going forward.</li>
<li>Key risks to valuation/earnings include: 1) higher than expected increase in gas prices, 2) lower CRC‐HRC spread, 3) Dumping of steel from other countries, 4) disrupted gas supply, and 5) lower utilization level.</li>
</ul>


We revise down our earnings estimates of International Steel (ISL) post 1) our survey of Karachi steel market to understand local/imported sales dynamics &amp; pricing differences and 2) lower than estimated 1QFY19 result.
We expect ISL to post EPS of Rs9.2/9.9 for FY19/20, down on average by 28% from our earlier estimates.
However, we maintain our ‘Buy’ call on ISL (the company has lost around 25% in its share price in 2018YTD) as our DCF based Dec-2019 target price of Rs95 offers total return of 21% (including dividend yield of 6%) from its last close.
During our visit to steel market we found imported Cold Rolled Coils (CRC) and Hot-dip Galvanize Coil (HDGC) being sold from various countries. This is in-line with our view that imported steel will continue to be sold in local market. Please refer to our report titled ‘International Steels (ISL): Earnings revised downward, ‘BUY’ maintained’, dated Jul 5, 2018.
Continuation of imported CRC/HDGC coupled with their discounted prices have led us to revisit our volumetric assumption of ISL. We have cut down our FY19/20 utilization assumption of ISL to 60/62% from earlier 75/75%.   
We continue to hold our assumption of local manufacturers’ inability to pass on hike in domestic input cost factors like gas prices. Recent hike of 30% hike in gas tariff is likely to increase ISL’s cost by around Rs300mn, translating into negative impact of 0.5ppt on its GP margins.
We have assumed gas price hike of 10% and 8% in FY20 and FY21, respectively. This will reflect 0.2ppt decline in the company’s GP margin going forward.
Key risks to valuation/earnings include: 1) higher than expected increase in gas prices, 2) lower CRC‐HRC spread, 3) Dumping of steel from other countries, 4) disrupted gas supply, and 5) lower utilization level.


International Steel (ISL): Earnings Revised Downward ‘Buy Maintained’