Dynasty Ceramic

Dynasty Ceramic Plc (DCC) 

Far below our estimate

DCC posted a net profit of Bt271m for 4Q14, up 5% YoY and flat QoQ. The result was 27% below our estimate and 8% short of the street number, mainly due to disappointing sales. DCC reported a net profit of Bt1.2bn for FY14, down 5% YoY. 

The firm announced a DPS of Bt0.069 for 4Q14 (slightly below our Bt0.08 assumption; the consensus assumption was Bt0.07), implying a 4.7% annualized yield (XD on March 2; payment on April 30). 

Results highlights

A lower SG&A/sales ratio led YoY earnings growth (profit was essentially flat QoQ, even though the fourth-quarter is normally seasonally weak). Sales slipped by 5% YoY and 3% QoQ to Bt1.6bn.GM was stable YoY and QoQ at 40.5%. The SG&A/sales ratio declined from 21.1% in 4Q13 and 19.6% in 3Q14 to 18.5% in 4Q14. Sales volume for the quarter remained weak, due to slow demand. However, the mean sales price rose YoY because of a bigger proportion of value-added products in the sales mix. DCC’s net gearing was stable QoQ at 0.4x at YE14. Inventory was well managed—flat QoQ at Bt2bn.

Outlook

1Q15 sales volume and profit should both rise QoQ on seasonality and YoY on a better business climate. The Jan-March quarter is normally the best period of the year for sales. 

What’s changed? 

We will revisit our model following the disappointing FY14 earnings (mainly due to weak sales). Previously, management had targeted sales growth of 10% for FY15 (volume up 7%, mean sales price up 3%).

Recommendation

Although the 4Q14 bottom-line was 27% short of our estimate, DCC did post YoY earnings growth for the first time since 3Q13, which we regard as a recovery signal. Looking ahead, we anticipate the release of pent-up demand for ceramic tiles. Note that industry-wide domestic sales volume declined in both 2013 and 2014. We have high hopes for 1Q15 high season earnings. Moreover, on the cost side, the price of natural gas (~30% of DCC’s cost of production) is set to decline this year, which would boost the firm’s GM and profit. 

Our BUY rating stands with a YE15 target price of Bt6.8, calculated from a DDM framework (a 10.5% discount rate and 2% terminal growth). DCC’s current stock price implies a good dividend yield of 6% for FY15, paid quarterly.