AKD Securities Limited Equity Research – Daily Report

Karachi, April 16, 2019 (PPI-OT): ASTL: Getting off high horse

Deep into contraction cycle as the company struggles to pass-on input cost pressures, we revisit our investment case for ASTL, downward revising our earnings forecasts by 27% (on avg.) over the investment horizon (FY19-24F).

Consequently, our revised Dec’19 TP comes to PkR58/sh (previously PkR80/sh), accommodating for the company’s inability to maintain pricing discipline and weak demand cycle.

We expect the macro backdrop to remain challenging in CY19 for long steel manufacturers, with distinct regional factors at play, dictating market dynamics. Ongoing investigations against various construction projects and housing schemes will keep demand depressed in the North, while South may hold and get some respite from the favourable regulatory backdrop.

ASTL has lost out a quarter of its value since CYTD, half of it since FYTD, and two third from its peak in May’17, where several factors weighed on the stock price including i) poor financial performance, ii) failure to deliver on expectations, and iii) overall market sentiment.

With Tobin’s Q* below 1 (see chart below) and P/B multiple of 0.85 (x) (vs. historic trading avg. P/B of 2.04(x)), ASTL’s current price largely reflects the downside risks, in our view. While highlighting the weak earnings outlook in the near term, we advocate for a long term investment horizon and call for staggered buying.

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