Dynasty Ceramic

Dynasty Ceramic Plc (DCC)
 

In line with estimate: DCC reported a 4Q11 net profit of Bt252m, up 2% YoY but down 13% QoQ (in line with our estimate but 8% below the consensus). The firm announced a DPS of Bt0.62 for 4Q11, a 4.0% annualized yield (XD on May 2; payment on May 4).
Results highlights: Despite numerous logistics problems related to the flooding in 4Q11, the firm still achieved modest YoY profit growth, thanks to 10% revenue expansion and good control of expenses (the SG&A/sales ratio declined 1.5% YoY). These factors were more sufficient to offset the effect of GM squeeze (down from 44% in 4Q10 to 40% in 4Q11, due to higher raw material costs during the flooding). In 4Q11, sales volume rose 9% YoY and the mean price by 1% YoY. The QoQ earnings contraction was due to a 4% drop in revenue on seasonality and slimmer GM (43.5% in 3Q11; 40% in 4Q11). Net gearing was just 0.08x at YE11, so we expect a 100% dividend payout rate. 
Outlook: We forecast that DCC will post a new record profit for 1Q12, enabled by 10% capacity expansion in 2H11 and led by first-quarter high season and post-flooding reconstruction demand. We believe that the low 4Q11 GM will prove to have been a temporary phenomenon caused by the Oct-Nov inundation.
What’s changed? Our projections stand unchanged, as FY11 profit was in line with our expectation. We forecast that DCC will post a new record high profit for FY12 of Bt1.5bn, up 25% YoY. Our key assumptions are achievable—10% revenue growth and only a 50 bps GM improvement (to 43% for FY12). A fatter GM would mean upside to our model. Note that management targets GM of 44% for FY12.
Recommendation: We maintain our TRADING BUY rating with a YE12 target price of Bt67, based on a DDM framework—an 11.6% discount rate and a 1% terminal growth rate. We see a further re-rating ahead, prompted by anticipation of a record profit and DPS for 1Q12 (to be paid out in late May, only a few weeks after the 4Q11 payout). The stock has the potential to return to its 1Q11 high season PER of 17x (it currently trades at an FY12 PER of 16x). DCC’s expected dividend yield is an attractive 6.2% for FY12.