Dynasty Ceramic

Dynasty Ceramic Plc (DCC)

Q3 2012 operating profit stands at B267m, dropping 8% YoY

DCC’s 3Q12 financial result comprises of B267m of net profit and operating profit or 8% YoY decrease which is lower than projected at B300m as a result of the increase of various production costs. These are the costs of clay and coating, electricity and labor. Accordingly, the gross margin has dropped to 39.4%. For 3Q12 sales, it has hit B1,777m or only 5% YoY increase which is quite low compared with the sale growth over 10% in the past 3 years due to aggressively rising competition. For the selling and administrative expenses, they have ascended slightly along with the increased transportation cost. In 3Q12, DCC’s profit before income tax expenses has
descended compared with the same period of prior year; however, DCC’s net profit has been saved from severe fall by the tax rate that is cut from 30% to 23%. According to 3Q12 net
profit, the company has announced to pay dividend at B0.65/share due to the policy of 100% dividend yield, going XD on 13 November 2012.

Rough path, many things not as projected
DCC’s plan of sale boosting didn’t go as expected since the company has been under intensifying competition due to the strength of competitors like TGGI under the administration of SCG, UMI that has made an alliance with RCI and also an increased import of Chinese granite tiles. For the plan of cost reduction, there’re numerous lists that couldn’t be done which are the cut of selling and administrative expenses, and increasing gross margin to 40%. In terms of the future plan, the
company would modernize their storefronts in order to enhance competitiveness for the expansion of modern stores in provincial areas. Furthermore, DCC aims to increase its product varieties
by importing China’s granito tiles for sale in outlets.

Profit forecast revised down 5%. Reiterate “HOLD”,receiving 6-7% dividend/year
We revise down our 2012 and 2013 profit forecast by 5% and 4% respectively due to the sale growth lower than projected and the profitability that still hasn’t recovered. Accordingly, 2013 fair
value, using DCF, declines to B52.18 with not much upside from the current share price. We recommend only “HOLD”, expecting 6-7% dividend yield/year as the company gives priority to dividend payment by quarter.