CITY, an interesting new growth stock
CITY (2.80) may well be the interesting one at current prices. "Buy on this dip", I dare to call it.
CITY just came IPO at 2.96, so lots of information is at hand. See company profile at SET web site, for the full English language prospectus. This company has a low p/e, low debt level, high future growth rates and is in the right industry, with SAT (a selection in my current favorites) hitting new all time high prices.
CITY is a metal fabrication systems producer and distributor. It just listed 300 million shares in the building and construction sector, including 90 million new shares. BT Securities was the adviser for the listing. City Steel CEO Komgrich Phongratanadechachai said the "company remained bullish on future prospects, with revenue growth projected this year at 10% to 15% to 550 million baht on strong growth in the automobile industry". As was published in the BKK post.
Profits for the quarter ending on Oct 31 totalled 39.9 million baht, up 19% year-on-year, on revenues of 142 million baht and the funds raised from the IPO will be used for new factory expansion, working capital and debt repayments. The Phongratanadechachai family remains the largest shareholder in the company, with a 70% stake post-IPO.
Pisit Serewiwatana, the BT Securities managing director, said the fall in the company’s share price stemmed from retail sales due to political uncertainties. But he believed that CITY’s long-term fundamentals offered strong value to shareholders.
""I think if we look at the fundamentals, we"ll see that the company’s foundation is very solid with high profit prospects. The pricing, I believe, was right. The market overall was under pressure over politics and the Shin case,"" Mr Pisit said.
The IPO price of 2.94 baht is 6.25 times earnings, well under the industry average of 9.21 times.
Yet, another discount rating to a company growing considerably faster then the industry, solely due to its small cap. rating. City Steel has a low debt level at just 0.36 times equity, expected to fall to 0.16 times after the IPO.
The company’s new plant is likely to be completed in the third quarter of this year, expanding current production capacity of 25,000 tones per year. The company now is running at 90% of capacity, and CITY plans to expand its production facilities by 50% by 2007.
At the current price of around 2.62 City is trading at a trailing p/e of only 4.6! Sales and earnings are bound to grow fast as the company is coming on with some 50% new capacity in the 3 Q. "06. Sales and earnings so should grow very nicely this year and even more next. The book value is a nice 2.20 per share and the financial ratio’s are prudent as well.
Dividend payout is stated at 40% of profits which so could well be 0.25 Baht for year 2006 on an earnings estimate I am guessing at 0.65 for this year. The p/e so would drop to under 4 for year 2006!
The Phongratanadechachai family retains control with 70% of the now (post IPO) outstanding shares (only 90 mill. have been IPO"d), but there is 1 1/2 year holding period before insiders can sell any significant amount.
While CITY is a micro cap, it has seemingly strong earnings growth for near and medium term future -and trades at a most undemanding current valuation! I like their business and note that 90% of raw materials are sourced from within Thailand and the company exports very little. The company prices its products by cost plus a set margin, leaving little room for cost increased to eat up profits.
The company does have BOI privileges which should be renewed as they get the ISO 9000 by August 2006.
BOI stands for Board of investment tax privileges. Meaning the company has select tax waivers due to obtaining these favorable privileges. Take a look at their web site at: www.citysteelpcl.com
I like the simple straight forward products they make...customer of Ticon are probably also big customers of City and we know that global outsourcing is only increasing. I expect the dividend rate on the current market price to be around 6-7% this year and probably some 10% next year and more thereafter. Yet the growth rate is impressive and the company has prudent financial ratio’s, as indicated.
