taurus research.2

INSIGHTJanuary09,2014

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AkzoNobelPakistanLimitedEarningsgrowthtoremainrobust!With9MCY13resultsshowingsizeable improvement inprofitability,thestage issetfortheCY13resultstofinishonahigh.DespitesubduedQoQsalesin4q,weexpectCY13salestoriseby14%.Highergrossmarginduetostableoilpriceswillaugmentgrossmarginsto37%(CY12grossmarginsof32%),resultingingrossprofitsgrowingby27%.LowerAdminexpense (most likelyduetoabsenceofdemergerexpense) isprojectedtotakeoperatingprofitsupby166%.WeexpectQoQearningsof4qtobeonthelowersidedueto:1)slowdowninAutomotivesectorespeciallyinthepassengercarsegmentduetolowerseasonaldemandand2)declineinOtherincome(duetooneoffgaininthepreviousquarter).EvenpostdividendpayoutofPKR78.6/shareinApril,thescriphascontinuedtoheavilyoutperformthemarket,risingby275%vsKSE100indexappreciatingby43%.WemaintainourBuystanceonthecompanyafterraisingoursalesvolumeassumption&TP roll forward.Thescript iscurrentlytradingatCY14P/Eof9.8xandoffersadividendyieldof5%.WithCY13expectedcashbalanceof~PKR30/shareandnoleverage,thecompanycancomeupwithapositivesurpriseonthepayoutfront.

CY13,agoodyearinthemaking!Akzo Nobel Pakistan Ltd. (AKZO) reported 9MCY13 net earnings of PKR457mn (EPS:PKR9.85),depictingastronggrowthof127%ascomparedtoPKR201mn(EPS:PKR4.34)in theCPLYon thebackofhighersalesvolumesand69% rise inOther income (due tohighercashbalance&oneoffgain).Grossmarginsduringthe9MCY13alsoimprovedto37%from32%intheCPLY.Weexpect4QCY13earningstobeonthe lowersidedueto:1)slowdown inAutomotivesectorespeciallyinthepassengercarsegmentduetolowerseasonaldemand2)implicationofextra2%salestaxonsupplyofpaintsinadditionto1%hikeasannouncedinFederalbudget&3)declineinOtherincome(duetooneoffgaininthepreviousquarter).FutureOutlookGoingforwardinCY14,weareforeseeinggrowthinearningsonthebasisofhighersales

DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnectedwithitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.

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SyedAsimAliZaidiasim.zaidi@taurus.com.pkDirect:+922135216403

AKZOPA BUYStockpriceas at08Jan 138.2Targetprice 163.4Currentupside/(downside) 18.3%Outstandingshares(mn) 46.4MarketCap(PKRm) 6,418Freefloat 24.2%3MAvg.dailyturnover(PKRm) 14.53MAvg.dailyvolume(m) 0.13MHigh 138.93MLow 77.5

KeyFinancials inPKRmnYearend CY12A CY13F CY14F CY15FNetsales 4,764 5,442 5,874 6,348Costofsales 3,193 3,451 3,485 3,730Gross Profit 1,571 1,991 2,389 2,617Operatingprofit 243 648 882 934Otherincome 316 452 151 158NetProfit 365 545 654 689

KeyMetricsEPS 7.87 11.74 14.08 14.82DPS 78.60 6.00 7.50 8.50BVPS 131.0 64.1 72.2 79.5P/Ex 17.6 11.8 9.8 9.3P/BVx 1.1 2.2 1.9 1.7DividendYield 56.9% 4.3% 5.4% 6.2%Earnings growth N.M 49% 20% 5%ROA 5% 13% 15% 14%ROE 6% 18% 20% 19%NetDebt/Equity 75% 44% 47% 50%

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PKRmn 3QCY13 4QCY13f QoQ CY12 CY13f YoYNet sales 1,302 1,276 -2% 4,764 5,442 14%

Cost of Sales 812 796 -2% 3,193 3,451 8%

Gross Profit 490 480 -2% 1,571 1,991 27%

Operating Profit 195 140 -28% 243 648 166%

Other income 147 27 -82% 316 452 43%

EBIT 321 155 -52% 517 1,014 96%

Financial charges 27 10 -64% 11 40 258%

PBT 294 145 -51% 506 974 92%PAT 191 88 -54% 365 545 49%

EPS 4.10 1.89 -54% 7.87 11.74 49%DPS - - - 78.60 6.00 -92%Source: Company Financials & TSL Research

INSIGHT TSLResearch

volumesasthecompanyisfocusingon1)vehiclerefinishes&protectivecoatingstocompensate for theslowdown inautomotivesector (due tochanges ingovernmentpoliciespertainingtoreduceddutyonimportedhybridcarsandincreaseinsalestaxfortractors)2)capturingnewopportunitiesinthepowerandmaintenancesectorsinordertomitigatetherecenthike insalestaxby2% and3)positivemarketsentimentassociatedwiththenewlyelectedgovernmentandthesamewouldlikelyresultinimprovedbusinessclimateinthemediumtolongterm.Ouraboveestimatesarealsodulysupportedbythefollowingassumptions:1) Growthinautomobilesector(implementationofADIPII)&localcementsales.2) Stablecrudeoilprices.AboutthecompanyAkzoNobelPakistanLimited(theCompany)wasincorporatedinAugust2011asapublicunlistedcompanyundertheCompaniesOrdinance,1984andwassubsequently listedon theKarachi, Lahore and Islamabad Stock Exchanges in July 2012. TheAkzoNobelGroupacquiredICI in2008bringingtogetherthe innovation, leadershipandexpertiseofbothcompanies.ThepaintsbusinessofICIwasdemergedwitheffectfromJuly2011andtransferredtoandvestedinAkzoNobelPakistanLimited.Thecompanyisprimarilyinvolvedinthemanufacturingofpaintsandtradingofspecialtychemicals with household brand names such as DissolvineChelate chemistry (usage:processingphotos,cleaningdetergents,agriculturalproducts&preservingfoods),Dulux,Sikkens(Automobileindustry)GliddenMagikandPaintex.Theregisteredofficeandfactory of the company located at Ferozepur Road, Lahore. ICI Omicron B.V. (a whollyownedsubsidiaryofAkzoNobelN.V.)holds75.81%ofthesharecapitalofthecompany.Thecompanyhas46.4mnsharesoutstanding.

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