TOKYO CEMENT COMPANY (LANKA) PLC

Teller wrote:Avoid tokyo , its struggling with cash flow.

EquityChamp wrote:Huge activity in non voting share today. Over six million shares traded gaining 1/- within the day. I am not sure but some foreign investor exit can be within the high volume. Voting share still trading strongly closing above 34/- today.

Ekanayake90 wrote: A stronger LKR exchange rate, lower lending rates and the removal of Cess for clinker imports are expected to bode well for TKYO. With the anticipated commencement of large-scale infrastructure projects coupled with other private projects, cement consumptions levels are expected to pick-up from FY22E, which will result in a material increase in TKYO’s capacity utilisation levels, and thereby improved GP margins.

Based on a DCF valuation, we have derived a 12M target price of Rs.39.1 for the voting share, which suggests a potential upside of ~17% to current price levels, and maintain the rating for the share as BUY


-CT CLSA-

Ekanayake90 wrote:

Ekanayake90 wrote: A stronger LKR exchange rate, lower lending rates and the removal of Cess for clinker imports are expected to bode well for TKYO. With the anticipated commencement of large-scale infrastructure projects coupled with other private projects, cement consumptions levels are expected to pick-up from FY22E, which will result in a material increase in TKYO’s capacity utilisation levels, and thereby improved GP margins.

Based on a DCF valuation, we have derived a 12M target price of Rs.39.1 for the voting share, which suggests a potential upside of ~17% to current price levels, and maintain the rating for the share as BUY


-CT CLSA-

Equityinvestor wrote:

Ekanayake90 wrote:

Ekanayake90 wrote: A stronger LKR exchange rate, lower lending rates and the removal of Cess for clinker imports are expected to bode well for TKYO. With the anticipated commencement of large-scale infrastructure projects coupled with other private projects, cement consumptions levels are expected to pick-up from FY22E, which will result in a material increase in TKYO’s capacity utilisation levels, and thereby improved GP margins.

Based on a DCF valuation, we have derived a 12M target price of Rs.39.1 for the voting share, which suggests a potential upside of ~17% to current price levels, and maintain the rating for the share as BUY


-CT CLSA-

Forget about 12 months..this will reach 37-38 at the election, if all goes well (no second wave etc)...

Hopefully a Dividend also upcoming.

EquityChamp wrote:I thought its good to wright some thing more on TKYO highlighting what happened, what is happening now and what will happen in future quarters.

TKYO has made a profit of 1.35bn for the 1H of 2019 compared to 0.48bn loss during the preceding year. Why they have made losses was due to increase in raw material cost and the inability to pass down the cost increases to consumer due to controlled cement prices. Then in 2019 government has allowed to increase cement prices by 100/- per bag and this has helped the company to increase the gross margins from 20% to 30% in 2019 and that's where the profits are made.

The 2 Half results announced to investors in early November and investors reacted very positively to it and that's where you all have seen the price went up from 20s to 50+ hoping a similar report in Q3 as well.

Then Q3 report was released on 29th Jan. The third quarter revenue was 1.8bn lower to 2nd quarter and as a result 543mn drop in 3rd quarter PAT to record 260mn. Investors reacted very negatively to this quarter result which brought back the stock price again to 20s with the help of Covid 19 as well. Now do we understand why 3rd quarter revenue was low. We had the presidential election going. After that a government change too happened. In the meantime lot of construction projects were also either moved slowly or put on hold so its obvious a reduction in demand for cement.

Now the fourth quarter report is due. Ideally it should be out by 31st May but delayed this time for some reason. This may be due to lockdowns for two months effectively put things on hold but it will be out by next week most probably. What can we see in that report for Q4. Can it be worse than Q3? As most of us know the delayed project works restarted during Q1 and was running smoothly until such time lock downs happened mid March. But I don't believe the two week's impact can create a major revenue loss for TKYO hence they should report more than 260mn for Q4. Even if it is 300mn still up by 50% compared to the same quarter of 2019. This will give TKYO a full year profit of close to 2bn compared to the loss of 464mn for 2019.

Now the interesting scenario of 2020. Q1 2020 will be no doubt a difficult quarter for them given that a lockdown of two months will significantly reduce their income and I am expecting a loss for them. But however from Q2 onwards what are their for TKYO for positives. The biggest one will be the imposition of higher cess on imported cement that will definitely increase their sales volumes. Next is after the conclusion of GE in early August the government will surely ramp up the construction sector which was in limbo during past five years or so. This again will be positive for TKYO. So all in all what if they manage to record the same PAT as of 2019/2020 in 2020/21 with all these developments. Then what should be the price be. Think all these and try to factor it in to the share price and see the value. Then you can decide whether the current price is an investment mode or a forget-about-it mode.

Good luck

arun.cse wrote:Keep eye on TKYO