Analyst briefing takeaways of Thal Ltd

Thal Limited (THALL) posted 3QFY21 consolidated NPAT of PKR1.6bn (EPS: PKR20.29), up 46% yoy due to an increase in sales of the Engineering segment amid surge in overall Auto industry volumes. Gross Margins, however, remained flattish at c.15% yoy. This took 9MFY21 NPAT to PKR4.0bn (EPS: PKR49.83), up 52% yoy.

Key highlights:

Engineering Segment

Car sales during 3QFY21 rose by 62% yoy, due to overall macroeconomic improvement following the lockdowns last March (hence low base). The company believes that the present growth in sales will sustain the upwards trajectory.

Thal Boshoku turned profitable in 3QFY21, as compared with SPLY, amid sharp demand for the Yaris. It has been approached by Hyundai for quotations for production of seats.

The Engineering segment has successfully added new product sales to Al Ghazi Tractors, Hyundai and Atlas Honda, while retaining sales to other OEMs (such as the new Honda City and Civic, both of which are planned to be launched later in CY21).

The robust backlog of orders at the OEMs is likely to keep revenues healthy for this segment in 4QFY21.

Building Materials and Allied Products Segment

The majority of sales of the Papersack division (PS) are to the cement industry (about 85% of total PS sales). The surge in cement demand (both local and exports) has lifted sale of the division; where THALL has c.20% market share (compared with Cherat Packaging and Nishat Paper), as per management.

The PS division is currently expanding into woven WPP bags segment (Capex of PKR1.7bn), which will commence production by 1HCY22. The division is also enhancing the production capacities for both cement bags and SOS bags (1HCY21), by 80mn and 48mn bags pa respectively.

The Jute division has achieved record high sales during 9MFY21 (37% market share) while maintaining margins, despite the high costs of imported raw jute. Timely procurement of jute (relative to competitors) was the driving factor.

Investments in the Energy sector

SECMC has been operating smoothly for well over a year, churning healthy profits. The current capacity is 3.8MT per annum, where THALL’s share in the net profits was c.PKR1.3bn. Phase II is presently underway, which will enhance the capacity to 7.6MT (estimated completion in 2HCY22, in sync with the completion of ThalNova and Thar Energy).

Thal Nova achieved financial closure in September 2020 and is expected to commence operations in 2HCY22. The disbursement of funds from lenders to the tune of US$18mn (and PKR4bn from locals) has led to an improvement in cash flows (production of facility on track).

As per management, there have not yet been any talks with government for tariff re-negotiations of CPEC projects. Nonetheless, the management believes that likelihood of a change tariff is low.

THALL is presently trading at a 12mth trailing P/E of 12.0x, higher than INDU (10.3x), where the stock has risen 12% since April 2021 on the back of improved profitability of all divisions seen in the 3Q results.

Courtesy – Intermarket Securities Limited.

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