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(RAKCEC:UH) Recommendation 24.5% Unique Competitive Upside - PowerPoint PPT Presentation

Ras Al Khaimah Ceramics (RAKCEC:UH) Recommendation 24.5% Unique Competitive Upside Positioning Strong Industrial Positioning Recovering Financials Sanitary Ware Company Overview Tiles Established in 1989 Serves 150 countries


  1. Ras Al Khaimah Ceramics (RAKCEC:UH)

  2. Recommendation 24.5% Unique Competitive Upside Positioning Strong Industrial Positioning Recovering Financials

  3. Sanitary Ware Company Overview Tiles Established in 1989 Serves 150 countries 15,000 employees 110 million square meters of tiles 5 million pieces of sanitary ware 24 million pieces of porcelain Tableware 600,000 faucets a year

  4. Competitive Positioning Somany Competitor Tiles Sanitary ware Table ware Saudi Ceramics Prism Cement ✓ ✓ ✓ Prism Cement ✓ ✓ ✘ Somany ✓ ✓ ✘ Saudi Ceramics ✓ ✓ ✘ Cleopatra Ceramics Market Ma t Cap (in Competitor UAE AE KSA Middle Ea Mi East Ind ndia Bangladesh Eur Europe Af Africa rica Remarks Re billions) bi ✓ ✓ ✓ ✓ ✓ ✓ ✓ Somany 35.014 Only exports Sa Saudi ✓ ✓ ✓ ✓ ✓ ✓ ✓ 1.325 Ceramics cs Al Al Mah Maha ✓ ✓ ✓ ✓ ✘ ✘ ✓ 0.40 Ceramics cs ✓ ✘ ✘ ✘ ✓ ✘ ✓ Pr Prism Cement 67.727 Cleopatra ✘ ✘ ✓ ✘ ✘ ✓ ✓ NA Private Ceramics cs UNIQUE COMPETITIVE POSITONING UNI STRONG INDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  5. Porter’s Analysis High barrier to entry, high cost per unit, large capital investment Many industry players with Plastic, aluminum, wood, marble competitive advantages Legend: 0 = No threat 1 = Very Low 2 = Low Switching costs for retail customers ⬇ vs. Number of suppliers ⬇ 3 = Moderate construction companies and governments ⬆ 4 = High 5 = Very High VARIED COMPETITIVE POSITONING VA STRONG IND ST NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  6. Industrial Positioning Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING ST STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  7. Industrial Positioning The growth of Global Demand from 2016 to 2020 is expected to grow by 66% Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING ST STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  8. Industrial Positioning UAE-EXPO2020: ⬆ C, ⬆ G, ⬆ Real Estate & Tourism = ⬆ Demand for Ceramics. Saudi Arabia: Oil Price growth India 2020: Contraction project (+20 mn housing units) Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING ST STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  9. Industrial Positioning Global GDP is expected to grow from 2016 to 2022 by 37% Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING ST STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  10. Industrial Positioning Interest Rates ⬇ , Investment ⬆ , Construction ⬆ = Demand for ceramics ⬆ Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  11. Industrial Positioning Government Expenditures ⬆ : Infrastructure transaction ⬆ by 92% from 2013 to 2016 = Demand for ceramics ⬆ Major Markets Development Lending Residential Rates Supply Global Industry Growth GDP Government Expenditures Tiles Production Infrastructure Transaction VARIED COMPETITIVE POSITONING ST STRONG IND NDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RISKS

  12. Recovering Financials Revenue (AEDmn) 3,500 3,000 2,500 2,000 1,500 Q3 2017 1,000 500 9.2% YoY 0 REVENUE 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e Net Income (AEDmn) NET INCOME 85.6% YtD 300 250 14.1% YoY 200 CORE REVENUE 150 100 50 0 2012 2013 2014 2015 2016 (50) VARIED COMPETITIVE POSITONING STRONG INDUSTRIAL POSITIONING RECOVERING FINA RECO NANCIALS POSITIVE VALUATION INVESTMENT RISKS

  13. Recovering Financials EBITDA Margin 25% Working Capital 235 20% 215 195 15% 175 155 10% 135 5% 115 95 0% 75 2012 2013 2014 2015 2016 Q3 17 '13 '14 '15 '16 '17e '18e '19e '20e '21e Gross Margin Days in Accounts Receivables - Days in inventory - Days in Accounts Payable - 35% 30% 25% ❖ HIGHEST EBITDA MARGIN IN 5 YEARS 20% ❖ WORKING CAPITAL POSITIVE TREND 15% ❖ STABLE GROSS MARGIN 10% 5% 0% '12 '13 '14 '15 '16 Q3 17 VARIED COMPETITIVE POSITONING STRONG INDUSTRIAL POSITIONING RECOVERING FINA RECO NANCIALS POSITIVE VALUATION INVESTMENT RISKS

  14. Positive Valuation Relative Valuation Discounted Cash Flow EV EV/ / LTM TM EV/ EV / EBIT EBITDA EV/ EV / EBIT EBIT P/E /E Bas ase e cas ase 3.54 3.54 50% 50% Revenues Mu Mult ltip iple le Bear earis ish 3.39 3.39 25% 25% 2.5x 15.1x 25.7x 22.5x Used ed Bull ullis ish 3.70 3.70 25% 25% Pric rice 3.9 5.0 1.9 2.3 3.27 3.54 VARIED COMPETITIVE POSITONING STRONG INDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VA VALUATION INVESTMENT RISKS

  15. Positive Valuation Relative Valuation Discounted Cash Flow 20% 80% 3.54 3.27 3.48 AED 24.5% Upside from 2.8 VARIED COMPETITIVE POSITONING STRONG INDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VA VALUATION INVESTMENT RISKS

  16. VARIED COMPETITIVE POSITONING 10000 20000 30000 40000 50000 60000 Monte Carlo Simulation 0 3.21 3.21 3.22 3.23 3.24 3.25 3.25 3.26 3.27 3.28 3.29 3.29 3.30 3.31 3.32 3.33 STRONG INDUSTRIAL POSITIONING 3.33 3.34 3.35 3.36 3.37 3.37 3.38 3.39 3.40 3.41 3.41 3.42 3.43 3.44 3.45 3.45 3.46 3.47 PRICE 3. PR 3.48 3.49 RECOVERING FINANCIALS 3.49 3.48 3.50 48 3.51 3.52 3.53 3.53 3.54 3.55 3.56 3.57 3.57 3.58 3.59 20% 3.60 3.61 3.61 3.62 3.63 POSITIVE VA 3.64 Relative Valuation 3.65 3.27 3.65 VALUATION 3.66 3.67 3.68 3.69 3.69 3.70 3.71 3.72 3.73 3.73 3.74 3.75 3.76 Terminal Growth Cost of Equity Factors: INVESTMENT RISKS 3.77 3.77 3.78 3.79 3.80 3.81 3.81 3.82 3.83 3.84 3.85

  17. Investment Risks Current Ratio 80% ❖ LIQUIDITY / RECEIVABLES COLLECTION 70% ❖ INTEREST RATE HIKES 60% 50% ❖ HIGH LEVERAGE 40% ❖ POTENTIAL DROP IN OIL PRICES 30% 20% 10% 0% 2012 2013 2014 2015 2016 Risk Matrix Crude Oil Price 160 140 120 Market Probability 100 80 60 Operational 40 20 0 Financial 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 WTI BRENT Severity VARIED COMPETITIVE POSITONING STRONG INDUSTRIAL POSITIONING RECOVERING FINANCIALS POSITIVE VALUATION INVESTMENT RI RISKS

  18. Recommendation 3.48 12m TARGET Unique Competitive Positioning 2.8 CLOSING Strong Industrial Positioning 24.5% Recovering Financials Upside

  19. Appendix A Key Financial Ratios 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e AED mn 0% 11% -11% -1% -9% -1% 8% 7% 4% 4% Sales Growth 27% 27% 26% 28% 28% 30% 30% 30% 30% 30% Gross Margin 23% 19% 18% 18% 23% 22% 22% 22% 22% 22% Operating expenses Ratio 6.2% 9.9% 10.2% 12.2% 4.7% 10.5% 9.6% 9.9% 10.1% 10.3% EBIT margin 11% 14% 19% 19% 17% 16% 16% 16% 16% 16% EBITDA Margin 0% 27% -1% 1% -102% 5019% -21% 12% 9% 7% NI Growth 7% 8% 9% 9% 0% 9% 6% 7% 7% 7% Net Margin - 5% 5% 5% 0% 4% 3% 3% 4% 4% ROAA - 12% 10% 9% 0% 9% 7% 7% 8% 8% ROAE Account Receivables - 3.2 2.7 2.6 2.4 2.5 2.6 2.6 2.6 2.7 Turnover Days in Accounts - 115 133 141 153 148 141 141 139 134 Receivables - 2.4 2.1 1.9 1.7 1.8 2.1 2.2 2.2 2.3 Inventory Turnover - 154 178 188 220 202 171 167 166 161 Days in inventory - 2.8 2.6 2.7 2.5 2.8 3.1 3.1 3.0 3.0 Accounts Payable Turnover - 128 141 136 147 128 117 118 120 121 Days in Accounts Payable 3.0 3.0 2.6 2.9 2.4 2.5 2.6 2.8 2.9 3.0 Fixed Assets Turnover 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Total Assets Turnover 75% 54% 62% 51% 55% 52% 51% 50% 48% 46% Current Ratio 63% 79% 77% 95% 93% 115% 121% 116% 133% 141% Quick Ratio 87% 69% 62% 67% 78% 78% 79% 70% 70% 70% Debt to Equity 65% 50% 47% 55% 62% 47% 44% 43% 31% 26% Net Debt to Equity 79% 34% 27% 23% 64% 25% 27% 25% 22% 22% Interest Coverage 1.9 1.6 1.6 1.9 1.8 1.9 2.0 1.8 1.9 2.0 Debt to FA 0.10 0.10 0.24 0.25 0.18 0.11 0.17 0.17 0.15 0.15 Capex to FA 8% 16% 13% 19% 24% 19% 19% 17% 25% 18% FCF to Revenue 78% 110% 70% 98% 140% 118% 120% 107% 162% 116% FCF to EBITDA

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