Dynasty Ceramic

Dynasty Ceramic Plc (DCC)

Strategy adjusted to handle more aggressive competition
According to more aggressive competition in the tile market which is a result
of domestic competitors and tiles imported from China including lack of
transportation, DCC has lost its market share from 43-44% to 40%.
Currently, the company has made contracts with 26 transportation
companies in order to handle with 7 million square meters of tiles per month.
Moreover, forklifts have been purchased for 10 outlets to do lifting
themselves which would help reduce the transportation cost by B1.5 per
square meter. Within the end of 2012, the number of forklifts would be
increased for 40 outlets in total. For the marketing strategy, apart from
opening more outlets by 15 branches to 195 branches, DCC has increased its
selling opportunity through Thaiwatsadu which currently generates B40m of
revenue per month for the company, considered 8% of total revenue.
Furthermore, DCC would begin importing China’s granito tiles to launch into
the market next year. In terms of the plan for production cost reduction, the
company has developed the mixture of clay for tile production which has
helped reduced the use of natural gas by 4%. DCC aims to reduce the use of
natural gas by 6% in order to increase the gross profit margin to 40% in
2013.


4Q12 profit projected around B260-280m, rising 10% YoY
According the abovementioned reasons and a launch of new-pattern tiles in
October and countrywide selling promotion, DCC’s sales volume has risen by
23% YoY. Accordingly, sales volume in November and December is projected
to be boosted constantly, thus 4Q12 sales volume is likely to grow not lower
than 10% YoY. The price of product mixed of 16”x16” tiles that has been
revised up to high level would raise the average selling price in 4Q12 to
B131/square meter, rising from 3Q12 with the average selling price of
B129.34/square meter. Accordingly, 4Q12 gross margin might increase to hit
40% once again. Preliminary, DCC’s 4Q12 profit is projected around B260-
280m, increasing by 10% YoY.


Share price declines, resulting in appealing upside and
yield. Upgrade recommendation from “HOLD” to “BUY”
The negative factors from 9M12 earnings result and the chance that DCC
might be removed from SET50 should have already reflected in the share
price that has dropped by almost 20% during the past 2 months. The
company’s profit would be able to grow once again due to the adjustment of
strategy to handle with the aggressive competition and the tax rate that is
cut from 23% to 20% in 2013. 2013 fair value, using DDM, stands at B52.18
or 15.24x PER with 21% upside from the current share price. Moreover, the
dividend yield is 8%. Accordingly, we upgrade our recommendation from
“HOLD” to “BUY” for DCC.