PABC: JS Lowers rating on stock price run-up

Following a sharp stock price rally of 68% over the last 12 months, exceeding revised TP of Rs100 (and a 19% downside), JS Global has downgraded their rating for Pakistan Aluminum Beverage Can Ltd (PABC) to “Underperform”. We include a 12% risk-free rate and 7% terminal growth rate in our valuations. Significant risks include anticipated decline in domestic demand from CY 25 onwards and potential balance sheet deleveraging in a monetary easing scenario.

The company has short-term investments worth Rs15.2bn and net cash of Rs 8.4bn but without those it may struggle. Infrastructure cess imposed in KPK also threatens exports to Afghanistan and Central Asian markets. Weak sales volumes continue, led by weak soft drinks demand particularly in winter (Q4). Despite a 10% increase in domestic sales volumes, projected over CY24–28F sales are expected to be flat as this would be the level at which the company would be at capacity by CY28E.

Also, indications of a slow recovery in demand come from competitive pressures from big players such as Pepsi and Coke. Q4 consistently finds itself the weakest period on the grounds of revenues and production of soft drinks due to seasonal factors. In addition, the end of PABC’s 10-year tax holiday in CY27F will increase the company’s corporate tax rate to 39% and therefore will impact earnings in CY27E and beyond.

However, export sales may rise as domestic demand is expected to boost, helping to overcome some risks. However, PABC still practices routine trade with Afghanistan, and it is possible that imposed taxes and geopolitical instability may blunt the company’s pricing power. Although they are well stocked with cash and reserves, the shareholder payouts will quickly go down and dividends will be taxed at 15% withholding till CY26.

📢 Announcement: We're on WhatsApp – Join Us There! 

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →

Don't miss:

• Which cars are driving the rally in auto stocks?
• 5 High ROE stocks according to Topline Securities
• Why TPLP could go higher.