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Tokyo Cement [TKYO]: HOLD -- Update after price increase

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  • Tokyo Cement [TKYO]: HOLD -- Update after price increase

    ASP increase a positive; risk losing volumes to cheaper competition Our channel checks indicate that the CAA has approved a LKR 100.00/50kg bag increase in cement prices as of 15th February 2019. This places the price of a 50kg cement bag at LKR 1,095.00 (+10.1% to old price). In our view, this price increase will help TKYO breakeven their costs and pull the company out of losses. However, profitability will remain challenged given the significant depreciation of the LKR and the high levels of interest costs the company is bearing. We note that the price increase comes despite the cement manufacturers lobbying for a LKR 200.00/50 kg bag increase over the last 3 months. Given that our previous estimates factored a price increase of 3.0% for FY20E, we upgrade our forecast to factor in the latest price increase. However, given the risk of losing volumes to cheaper competition in a time of consumer spending slowdown, as the price increase has only been granted to the cement manufacturers TKYO and INSEE, we factor a volume decline of 4.0%. We do not expect any further increase in cement prices in 2019 with elections expected later in the year and the government being focused on protecting public sentiments. With our expectations of the LKR depreciating a further 5.0% in 2019, we believe TKYO’s margins will remain challenged in the near-term. We upgrade our gross margin estimates to 19.5% for FY20E (18.5% previously).
    Attached Files

  • #2
    අපිට ඉතිං තැනක් නෑනෙ....ඔයාල sell කියල දාද්දි අපි කිව්වේ buy @ 20.10 කියල. දැන් කියනව hold කියල!

    Comment


    • #3
      Just ignore valuations done by Asia Securities. They have no clue...specially this particular analyst


      Originally posted by Stock Guru View Post
      අපිට ඉතිං තැනක් නෑනෙ....ඔයාල sell කියල දාද්දි අපි කිව්වේ buy @ 20.10 කියල. දැන් කියනව hold කියල!

      Comment


      • #4
        Originally posted by sashimaal View Post
        Just ignore valuations done by Asia Securities. They have no clue...specially this particular analyst



        Sashi, How about Asha phillip valuations?

        Comment


        • #5
          Which valuations pls?


          QUOTE=ruwan326;n10310]

          Sashi, How about Asha phillip valuations?

          [/QUOTE]

          Comment


          • #6

            Comment


            • #7
              I inquired from researcher for the U turn and here what he said

              Quote
              ''With the price increase of LKR 100.00, we see the company breaking even and making profits, albeit at very low margins. While the price increase is not expected to do much, we do believe a LKR 100.00 price increase is significant, as a price increase to this extent was not expected by the company itself. Having said this, as you would have read in the report, we have outlined all the risks that are currently associated with the company in both the near-term and in the long run.

              To answer your question on the rating - Following the adjustments to our estimates, based on our rating scale on the returns (>+15.0% - BUY, <-15.0% - SELL), the downside to the share came in at -12.0%, which in our rating scales gets bumped up to a HOLD. At the current closing price of LKR 23.50/share, you would have seen in our daily report, that the downside to the stock is at -14.9%, which is a borderline HOLD, however, the stock was rated a SELL on our Monday closing daily review with a downside of -16.0%.

              With a target price of LKR 20.00 on the stock, it is our expectation that there will be more downside to the stock despite the price increase. - Unquote

              The rating change is as per calculation formula

              Comment


              • #8
                Prasa - just take their take on TKYO for the last year or so. It's there in their site and about 4-5 analyses over that period.
                You can have a good laugh looking at their valuations.


                Originally posted by prasa2004 View Post
                I inquired from researcher for the U turn and here what he said

                Quote
                ''With the price increase of LKR 100.00, we see the company breaking even and making profits, albeit at very low margins. While the price increase is not expected to do much, we do believe a LKR 100.00 price increase is significant, as a price increase to this extent was not expected by the company itself. Having said this, as you would have read in the report, we have outlined all the risks that are currently associated with the company in both the near-term and in the long run.

                To answer your question on the rating - Following the adjustments to our estimates, based on our rating scale on the returns (>+15.0% - BUY, <-15.0% - SELL), the downside to the share came in at -12.0%, which in our rating scales gets bumped up to a HOLD. At the current closing price of LKR 23.50/share, you would have seen in our daily report, that the downside to the stock is at -14.9%, which is a borderline HOLD, however, the stock was rated a SELL on our Monday closing daily review with a downside of -16.0%.

                With a target price of LKR 20.00 on the stock, it is our expectation that there will be more downside to the stock despite the price increase. - Unquote

                The rating change is as per calculation formula

                Comment

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