Dynasty Ceramic
4Q15: In line with SCBS but above market BUY
Dynasty Ceramic Plc (DCC)
4Q15 net profit was Bt347mn (Bt0.05/sh), +24% YoY but +26% QoQ, meeting our estimate but 7% above consensus. The improvement came from: 1) higher revenue; 2) better control over SG&A/sales; 3) last year’s low base from the recording of Bt104mn goodwill written off after business restructure. DCC announced a 4Q15 DPS of 0.053 (XD on Feb 26), implying a 100% dividend payout ratio.
4Q15 highlights.
- Revenue grew 9% YoY to Bt1.8bn in 4Q15, the first improvement for nine quarters, supported by a rise in sales volume (+5-6% YoY vs. -3% YoY in 9M15) and a price rise. In 2015, revenue was flat YoY at Bt7.2bn, with a slight drop in volume (-1% YoY), overwhelming the price rise.
- Gross margin was 41.9% in 4Q15, slipping 10bps YoY. In 2015, gross margin was 42%, +110bps YoY, thanks to the 31% fall in natural gas price, which accounts for 30% of costs.
- SG&A/sales fell 150bps YoY to 17% in 4Q15 and 100bps YoY to 17.8% in 2015, on lower transportation costs: diesel price, which accounts for 50% of SG&A, fell 17%.
Maintain BUY with new end-16 PT of Bt4.8. DCC shares have outperformed the SET by 48% over past 12 months in response to the benefits it gets from the low fuel cost environment. This is not yet over with, as prices continue to fall, giving it a further period of high margin. Also, demand is looking ready to recover. With the low oil price and the lag for fuel cost pricing (shifts in natural gas price lag shifts in oil price by 6-12 months), we expect gross margin to expand further, at least in 1H16. SG&A/sales should stay low, in tandem with low diesel costs. Volume-wise, a rise in government stimulus and normal budget disbursement is expected to lead to a moderate revival in demand of +2% in 2016F after three years of being in the doldrums. We maintain BUY with a new end-2016 PT of Bt4.8 (rolling over from Bt4.3 at mid-2016), based on 20x 2016PE (+1SD over its 7-year PE).
