Aisha Steel Limited (ASL) held its analyst briefing today to discuss 2QFY21 results and the company outlook going forward. The key highlights from the briefing are as follows:
– CRC-HRC margins, the primary determinant of profitability for ASL, have averaged at USD84/ton during the quarter. Management eyes the margins to remain elevated owing to strong demand for CRC in the region in the near term. This bodes well for the company.
– The company does anticipate run up in CRC rates going forward. Global demand for CRC is fueled by growth in auto sector and other downstream sectors. Current CRC prices are at PkR147.5k/ton that are lower by PkR10k/ton compared to imported CRC.
– The company realized CRC rates at PkR123k/ton. ASL sold 51k tons of CRC for the quarter. ASL managed to sell 56k tons of Galvanized Steel sheets. This is a sequential uptick of 35% Q/Q alone. Resultantly, revenues for the quarter stood at PkR14.2bn.
– The company sees CRC imports picking up as demand from pipe industry surges. The pipe industry liberally imports CRC at a concessionary rate under SRO 565.
– ASL has approached relevant authorities to curb misuse of the SRO and promote local products.
– The company is optimistic on capturing automotive space by supplying CRC and GI to the sector. The company intends to engage with new entrants to push for local CRC use. This can potentially open robust volumetric upside for the domestic industry in our view.
– To note, existing Japanese OEMs do not use domestic CRC for auto parts and skin.
– ASL sees demand in the domestic industry to remain strong and the impact of improved CRC prices and better margins should positively impact the company going forward.
– Management did not disclose inventory gains booked during the quarter.
– ASL has improved its market share to 36% during 1HFY21. The company enjoyed a market share of 30% in FY20.
– We have a Neutral stance on the stock trading at a forward P/E multiple of 7.9x. Our TP of PkR26/sh offers 13% upside from close.