TOMCL given price target of Rs. 45.38

Al Habib Capital Markets Pvt Ltd. has just released an update on its coverage of TOMCL stock. The research house has raised its Dec 24 TOMCL price target to Rs. 45.38 per share.

Key Points from the Report:

Expansion into New Markets:

TOMCL, a leading processor of red meat and associated by-products in Pakistan, has recently ventured into new markets such as Canada for premium pet chews and Uzbekistan for frozen beef. Additionally, the company achieved a significant milestone by becoming the exclusive Pakistani meat company authorized to export cooked beef to China. This strategic move is expected to yield impressive margins for TOMCL, given China’s status as one of the largest meat importers globally.

Strong Growth Trajectory:

Over the past five years, TOMCL has exhibited remarkable growth with impressive compound annual growth rates (CAGRs) of 25% in revenue and 38% in profit in PKR terms, and 6% and 17% respectively in USD terms. The company’s recent sales figures for 1HFY24 reached PKR 5.2 billion, reflecting a noteworthy 106% YoY increase. Despite prevailing economic challenges, TOMCL has maintained gross margins at 15% for the recent quarter.

Export Opportunities and Revenue Growth:

The approval to export cooked/heat-treated frozen beef to China presents substantial revenue growth opportunities for TOMCL. Projections suggest that the company could export over USD $20 million worth of cooked meat to China, leveraging a cost-plus-fixed-margin pricing strategy. Moreover, TOMCL’s revenue primarily in USD serves as a built-in hedge against PKR devaluation, effectively mitigating currency risks.

Attractive Valuation Metrics:

Despite its robust growth prospects, TOMCL’s stock is currently trading at appealing valuation multiples. With a forward P/E of 5.1x/3.6x for FY24/CY25 and a P/S ratio of 0.35x/0.28x, the stock offers compelling value compared to historical averages. Given the company’s strong performance history and promising outlook, there is substantial potential for stock price appreciation.

Future Outlook and Strategic Initiatives:

TOMCL aims for strategic growth through initiatives such as integrating farm operations, expanding pet chew offerings, and entering the beef casing market. The company plans to access new markets like Saudi Arabia and China while reducing reliance on the UAE. Additionally, TOMCL will expand its private labelling business and enter fast-food production. Approval for expanding offals in the UAE and entering EU and UAE beef casings markets showcases its ambitious expansion strategy.

Key Risks:

While TOMCL’s growth prospects appear promising, there are key risks to consider, including fluctuating mandi prices for animals, high inflation affecting raw material costs, potential demand slowdown, regulatory changes, livestock disease outbreaks, rising energy and fuel prices impacting margins, and competition from new entrants.

Disclaimer:

The information in this article is based on research by Al Habib Capital Markets Pvt Ltd.. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.