Buy - Actinver

Equity Research
Industrials
February 18, 2015
GISSA, S.A.B. DE C.V.
Buy
Weak 4Q14 results: EBITDA down 25% derived from non-recurring expenses
Change in Recommendation
GISSA
 Change in T.P.  Change in Estimates  Quarterly Review
Medium Liquidity
Last Price:
Other
P$ 31.5
Figures in millions of pesos
2013
L12m
8,845
950
9,712
1,058
9,712
1,058
10,377
1,191
11%
-13%
11%
11%
11%
11%
11%
12%
Price Target 2015: P$ 38.0 21% Return
■ Weak 4Q14 results with EBITDA down 25% to MP 228 million (3%
below our estimate), derived from non-recurring expenses incurred
during the quarter: i) staff restructuring; ii) marketing; iii) maintenance
of plants; and, iv) Funcosa’s acquisition expenses.
Sales
EBITDA
Margin
Growth YoY
329
424
424
578
■ After our call with the company, we are cutting our revenues and
EBITDA by 6%/19% in 2015. But at the same time, we are increasing
our estimates for 2016 by 3%/4% and 2017 by 4%/12% as we factored
in the new JV with Fagor Ederlan to build-up an auto parts plant.
Margin
Growth YoY
4%
-90%
4%
29%
4%
29%
6%
27%
Total Assets
11,855
12,753
12,753
12,779
1,911
2,180
2,180
2,100
3,433
3,815
3,815
3,613
■ We are lowering GISSA’s target price to MP 38.0/ share from MP 39.0/
share based on a DCF model which assumes a 9% WACC and a 4.5%
growth rate in perpetuity.
Equity
■ We maintain our BUY recommendation on GISSA mainly because of
its positive long-term outlook and strong volume expansion plan to
reach 292k tons of installed capacity at the auto parts division
approximately by the end of 2017 (from having 180 thousand tons).
■ Bright future in the auto industry. Auto production will grow 33% to 4
million vehicles in three years, derived from announced new
investments of USD 13 billion from automakers like Nissan, Audi,
BMW, among others.
Net Profit
2014 2015e
Cash
Total Liabilities
Debt
387
326
326
229
8,422
8,938
8,938
9,166
8,387
8,903
8,903
9,130
EV/Sales
EV/EBITDA
P/E
1.1x
10.2x
34.1x
1.0x
8.8x
24.6x
1.0x
8.8x
24.6x
0.9x
7.9x
19.4x
ROE
ROA
Net Debt/ EBITDA
Dividend Yield
3.8%
2.8%
(1.6x)
5.6%
5.3%
3.7%
(1.6x)
2.5%
5.3%
3.7%
(1.6x)
2.5%
6.4%
4.5%
(1.6x)
3.1%
Majority
Multiples
Market Data:
Mkt. Cap (mn)
Weak 4Q14 results derived from non-recurring expenses
Firm Value (mn)
GISSA’s sales increased 8% YoY to MP 2.6 billion (in-line with our projection)
due mainly to: i) a 10% growth at the auto parts division driven by a greater
capacity utilization rate of all operations, particularly of the San Luis Potosi
plant; ii) an 8% increase at the construction division as the domestic
construction market has already started to show some signs of recovery; and,
iii) a 2% drop at the house-ware division.
Float
MP 11,180
MP 9,418
1yr. High—low
GISSA vs IPC (Feb 2014 = 100)
130
110
90
Dec-14
GISSA
Oct-14
Aug-14
Jun-14
Apr-14
Net income decreased 31% to MP 55 million mainly due to the aforementioned
reasons.
49%
150
Feb-14
EBITDA declined 25% to MP 228 million (3% below our forecast) derived from
non-recurring expenses incurred during the quarter: i) staff restructuring (MP
40mn); ii) marketing (MP 18mn); iii) maintenance of plants (MP 16mn); and, iv)
Funcosa’s acquisition expenses (MP 9mn). If we take out the non-recurring
expenses, EBITDA would have increased 3% to MP 311 million.
MP 24.50—MP 34.00
IPC
Federico Robinson Bours
Enrique Camargo Delgado
INCOME STATEMENT
Energy, Petrochemicals & Industrials
4Q14
4Q13
Chg.
2014
2013
Chg.
2,577
2,396
8%
9,712
8,845
10%
 [email protected]
EBITDA
228
303
-25%
1,058
950
11%
 +52 (55) 1103 6600 x 4127 x 1836
EBITDA Margin
9%
13%
11%
11%
55
79
-31%
424
329
29%
0.22
-31%
0.92
29%
Actinver
Corporate Headquarters
Guillermo González Camarena 1200
11th Floor, Centro Ciudad Santa Fe
México, D.F. 01210
Sales
Net Profit
EPS
Equity Research
$
0.15
$
$
1.19
$
 [email protected]
1
Bright future in the auto industry
Auto production will grow 33% to 4 million vehicles in three years, derived from
announced new investments of USD 13 billion from automakers like Nissan, Audi,
BMW, among others.
Nodular foundry usage continues to grow in the industry driven by weight reduction.
GISSA’s sales volume will be positively driven by fuel economy targets which will
lead the total volume of GISSA’s auto parts to be sold.
We maintain our BUY recommendation on GISSA
We maintain our BUY recommendation on GISSA mainly because of its positive
long-term outlook and strong volume expansion plan to reach 292k tons of installed
capacity at the auto parts division approximately by the end of 2017 (from having
180 thousand tons).
We are lowering GISSA’s target price to MP 38.0/ share from MP 39.0/ share based
on a DCF model which assumes a 9% WACC and a 4.5% growth rate in perpetuity.
GRUPO INDUSTRIAL SALTILLO, S.A.B. DE C.V.
Discounted Cash Flow Model (2016 - 2020E)
Millions of Pesos
2016E
2017E
2018E
2019E
2020E
993
1,142
1,301
1,431
1,560
Effective Tax rate
30%
30%
30%
30%
30%
30%
Tax Effect On EBIT
(298)
(342)
(390)
(429)
(468)
(502)
NOPLAT
695
799
911
1,002
1,092
1,171
Depreciation
604
628
647
660
673
687
Working Capital Changes
(200)
(214)
(227)
(238)
(248)
(255)
CAPEX
(640)
(691)
(746)
(799)
(855)
(914)
459
522
584
625
663
EBIT
FCFE
Perp.
1,673
688
Perpetuity Grow th Rate
4.5%
Present Value of Explicit Period (2015 - 2019E)
2,193
Perpetuity Value
15,753
Present Value of Perpetuity Value
9,463
Theoretical Firm Value
11,656
Net Debt
(1,871)
Theoretical Market Value
13,527
Number of Shares (Mn)
356
Theoretical Price / Share
$
38.0
Current Market Price
$
31.5
Potential Return
21%
Average Cost of Debt
5%
Long Term Tax Rate
30.0%
After-Tax Cost of Debt
3.2%
Cost of Capital
9.0%
Market Risk Premium
5.5%
Risk Free Rate + Country Risk Premium
6.0%
Beta
0.6
% Total Debt
2.7%
% Capital
97.3%
WACC
9%
So urce: A ctinver
Equity Research
2
Equity, Economic, Quantitative and Fixed Income Research Departments
Equity Research
Gustavo Terán Durazo,
CFA
Senior Analysts
Head of EquityResearch
(52) 55 1103-6600 x1193
[email protected]
Martín Lara
Telecommunications, Media and
Financials
(52) 55 1103-6600x1840
[email protected]
Carlos Hermosillo Bernal
Consumption
(52) 55 1103-6600 x4134
[email protected]
Pablo Duarte de León
FIBRAs (REITs)
(52) 55 1103-6600 x4334
[email protected]
Pablo Abraham Peregrina
Mining, Metals, Paper and
Conglomerates
(52) 55 1103-6600x1395
[email protected]
Ramón Ortiz Reyes
Cement, Construction and Concessions
(52) 55 1103-6600 x1835
[email protected]
Federico Robinson Bours
Carrillo
Energy, Chemicals and Industrial
(52) 55 1103-6600 x4127
[email protected]
Juan Ponce
Telecommunications, Media and
Financials
(52) 55 1103-6600x1693
jponce@actinver,com.mx
Enrique Octavio Camargo
Delgado
Energy, Chemicals and Industrial
(52) 55 1103-6600x1836
[email protected]
José Antonio Cebeira
González
Consumption
(52) 55 1103-6600x1394
[email protected]
Mauricio Arellano Sampson
Mining, Metals, Paper Conglomerates ,
Cement, Construction and Concessions
(52) 55 1103-6600 x1835
[email protected]
Junior Analysts
Economic and Quantitative Research
Ismael Capistrán Bolio
Head of Economic and Quantitative
Research
Jaime Ascencio Aguirre
Economy and Markets
Santiago Hernández Morales
Quantitative Research
Roberto Ramírez Ramírez
Quantitative Research
Roberto Galván González
Technical Research
(52) 55 1103-6600 x6636
(52) 55 1103-6600 x1100
(52) 55 1103-6600 x4133
(52) 55 1103-6600x1672
(52) 55 1103 -66000 x5039
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Fixed Income Research
Araceli Espinosa Elguea
Head of Fixed Income Research
(52) 55 1103 -66000 x6641
[email protected]
Jesús Viveros Hernández
Fixed Income Research
(52) 55 1103 -66000 x6649
[email protected]
Equity Research
3
Disclaimer
Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock
Exchange main Price Index (IPC)

StrongBuywith an extraordinary perspective. According to the analyst, in the next twelve months, the valuations of stock
and/or prospects for the sector are EXTREMELY FAVORABLE

Buy. According to the analyst, in the next twelve months, the stock’s valuation and / or prospects for the sector are VERY
FAVORABLE

Neutral. According to the analyst, in the next twelve months, the valuation of stock and / or sector ARE NEUTRAL OR
FAVORABLE but with a similar perspective to the IPC

Belowmarket. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NOT
POSITIVE

Sell. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NEGATIVE, or
likely to worsen

In reviewwith positive outlook

In review with negative or unfavorable perspective
ImportantStatements.
a)
Of theAnalysts:
“The analysts in charge of producing the Analysis Reports:
Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González,
Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Ana Cecilia González Rodríguez; Carlos Hermosillo Bernal;
Santiago Hernández Morales; Martín Roberto Lara Poo; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico
Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:
b)
1.
"All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All
recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided
or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly,
with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services.
2.
"None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuers underhis
coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position
during the twelve months prior to the preparation of this report. "
3.
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assertiveness regarding the performance that is actually observed in the values object of the recommendation"
4.
"Analysts maintain investments subject to their analysis reports on the following issuers: AC, ALFA, ALPEK, ALSEA, AMX,AZTECA,
CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL,
MEXCHEM, OHLMEX,POCHTEC, TLEVISA,SORIANA, SPORTS, VESTA, WALMEX.
On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver
1.
Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations
contained in the reports of analysis to ensure future business relationship.
2.
All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned
in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V.
GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to
the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts
will be affected by the profitability gained by Actinver Group and its subsidiaries.
3.
At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any
investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports,
representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of
the question, except for the following: * AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14.
4.
Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following
issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP and FUNO.
This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.
To see our analysts change of recommendations click here.
Equity Research
4