BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Gobi Cashmere (GOV) - MSE’s Best Company of 2014 Cashmere is the second largest hard currency-earning export of Mongolia after mining products making the country the second largest producer of cashmere behind China with about 6,700 tonnes of raw cashmere per year or 40% of the world market. However, Mongolia is using only 10% of potential capacity in cashmere industry. Government of Mongolia has pledged to support non-mining sectors, specifically cashmere industry, in all ways as Mongolia is seeking to diversify its economy, now heavily reliant on mining. Closing price (MNT): 7,615 Rating: BUY Target price (MNT): 11,247 Forecast dividend yield: 1.4% Potential return: 49.1% Overview Established year: 1981 Business: Cashmere Market Cap: MNT 59.4B (US$ 30.6M) Gobi’s sales are growing each year to a new record high for the last 6 years. In 2014, Gobi proved it could keep the growth going, with sales and earnings growing 35% and 48%, respectively, which made Gobi to be the most profitable MSE-listed company in 2014 with net profit of MNT 10.5 billion (~US$ 5.6m). Major Shareholders Others 16% Ulemj Ikh LLC 6% Mongolian Stock Exchange named Gobi as the “Best MSE-listed Company of 2014” based on measures such as daily turnover, market capitalization, continuous profitable business, transparency and corporate governance. Hide Inter LLC 34% Tavan Bogd Trade LLC 16% Gobi Cashmere has 48 shops, including 10 new openings in 2014 and 2 new openings in 2015 so far, over 20 cities in 12 different countries. Since exports represent 40% of Gobi’s sales, the declining currency has had a positive impact on their results, while about half of Gobi’s domestic sales are foreign tourist oriented. We expect their exports to increase more than 20% this year. FCI LLC 28% Source: Central Depositary, BDSec 18,000 10,000 17,000 9,000 8,000 16,000 7,000 15,000 6,000 14,000 5,000 13,000 4,000 12,000 3,000 GOV:MSE Source: MSE, BDSec Close: 7,615 52wk Range: 6,900/9,500 Avg Vol (1y): 232 EPS (ttm): 1,345 BDSec JSC Mongolia’s Largest Broker GOV:MSE MSE Top 20 index GOV stock chart, 2-year MSE Top 20 With the recently signed Economic Partnership Agreement (EPA) with Japan, we should soon start seeing increase in cashmere export to Japan. While Mongolian cashmere is competing with Chinese cashmere on exports, China itself is a huge opportunity for Mongolian cashmere for its proximity and growing domestic market. The Company started opening franchise shops in China’s cities beginning last year. At MNT 7,615, the Company is just trading at a multiple of 5.7 times earnings and the Company looks capable of keeping its earnings growth at 20-30 percent for years to come. The Company’s market value as at MNT 59.4 billion or US$ 30.6 million. We believe the stock has been undervalued for a long time. For a mature company like Gobi with annual sales of US$ 33.9M, earnings of US$ 5.4M, market share of 40% in Mongolia, franchise shops in more than 20 cities in 12 countries around the world, continuous +20% annual growth rate, we think it is pretty low. With capacity utilization of 67%, the Company has a space to grow. The company has been paying annual dividends (~10% payout) to shareholders every year since 2010. We believe Gobi Cashmere is one of the best picks out there on MSE. BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Cashmere as largest cash-earning industry outside mining Cashmere is the second largest hard currency-earning export of Mongolia after mining products making the country the second largest producer of cashmere behind China with about 6,700 tonnes of raw cashmere per year or 40% of the world market. Major Mongolian export products, million US$ Copper concentrate 849 Oil Gold Cashmere Zinc Fluorspar 300,000 2,574 Coking coal Iron ore Mongolian Cashmere Export, million US$ 250,000 635 200,000 446 150,000 405 100,000 286 50,000 113 0 2004 72 Source: NSO, BDSec Mongolia is using only 10% of potential capacity in cashmere industry `05 `06 `07 `08 `09 `10 `11 `12 `13 `14 Source: NSO, BDSec But out of this 6,700 tonnes of cashmere, only over 10 percent goes into further processes and becomes end-products such as coats, jackets, sweaters, pants, hats, scarves etc, and the rest are exported after first process. Mongolia is selling only about 1.2 million units of cashmere knitwear (40% goes to export) per year, while world’s largest cashmere producer Erdos Group in Inner Mongolia alone has production capacity of over 10 million units. Gobi Cashmere has production capacity of over 700 thousand units and it made about 470 thousand units last year, which takes up 40 percent of market share in Mongolia. Number of its shoppers are growing as they offer a wide range of styles, quality, designs and prices. After 14-17 processing stages, 2 sweaters are made out of 1 kg of raw cashmere Source: Gobi Cashmere BDSec JSC Mongolia’s Largest Broker 2 BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Fastest growing MSE-listed company Gobi’s sales growing to new record highs for last 6 years Gobi’s sales are growing each year to a new record high for the last 6 years. In 2014, Gobi proved it could keep the growth going, with sales and earnings growing 35% and 48%, respectively, which made Gobi to be the most profitable MSE-listed company in 2014 with net profit of MNT 10.5 billion (~US$ 5.6m). Management sees the outlook of the year 2015 as very promising. They have outlined aggressive plans for the year to increase sales and earnings by 18 and 43 percent, respectively. Top 10 Most Profitable MSE-listed Companies of 2014, billion MNT Gobi Cashmere 10.5 Tavantolgoi Management sees 43% earnings growth in 2015 3.5 Bayangol Hotel 2.8 Suu 2.8 Material Impex 2.8 Talkh Chikher 2.3 Power Plant #3 2.3 Darkhan Nekhii 1.9 Gutal 1.5 Tekhnik Import 1.4 Source: MSE, BDSec Mongolian Stock Exchange named Gobi as the “Best MSE-listed Company of 2014” based on measures such as daily turnover, market capitalization, continuous profitable business, transparency and corporate governance. Japanese Hide Inter LLC is the largest shareholder, owning 34% of the Company whereas Tavan Bogd Trade LLC, one of the largest conglomerate in the country, owns 16% of Gobi. Free float is about 16% or 1.3 million shares. Mr D.Khurelbaatar, who is Deputy CEO at Trade and Development Bank, is the Board Chairman of Gobi. Mr Hideo Sawada serves on the Board of Directors of Gobi. Mr Sawada is the President and CEO of Sawada Holdings Co., Ltd., largest shareholder of Khan Bank, one of 3 biggest banks in Mongolia. He is known as the founder and Chairman of H.I.S. Co. Ltd. Contact us to get our Gobi initiation published in 2012 BDSec JSC Mongolia’s Largest Broker Mr Ts.Baatarsaikhan has been the Chief Executive Officer of Gobi since 2008. Mr Baatarsaikhan is the President of Tavan Bogd Group and founder of Tavan Bogd Trade Co., Ltd. He was named CEO of the Year by Bloomberg TV Mongolia in 2013. 3 BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Huge government support GoM is committed to develop cashmere industry Gobi holds plenty of appeal. First of all, Gobi Cashmere is Mongolia’s best known brand. GoM has pledged to support non-mining sectors in all ways as Mongolia is seeking to diversify its economy, now heavily reliant on mining. GoM is financing 888 local projects in different fields with its Chinggis bond, but GoM is mostly concentrating on cashmere, leather and food sector as they are major cash-earning businesses in Mongolia and they have potential both domestically and internationally. On April 20, GoM announced MNT 100 billion (~US$ 51M) loan for cashmere producers to support them with working capital, proving GoM’s commitment to the industry. To process all available raw cashmere domestically, local companies need some MNT 300 billion (~US$ 154M) of working capital during the season. According to the Ministry of Industry, if the country refines all of its cashmere before exporting it, cashmere export revenue can rise to US$ 1 billion from US$ 286 million. Mongolia is now using only about 10 percent of raw cashmere to make end product. According to Mongolian Wool and Cashmere Association, if working capital issue is resolved, Mongolian companies will be able to use and refine 50 percent of raw materials here to make end product. Raw cashmere, the single largest cost component in the industry went down 50% this year Raw cashmere price, which was soaring above MNT 80,000 per kg, decreased to MNT 40,000 this year. The lower price hurts herder’s income, but overall it is good for cashmere industry growth as a whole. Their main export target markets are France, Germany and Japan. Gobi Cashmere has 48 shops, including 10 new openings in 2014 and 2 new openings in 2015 so far, over 20 cities in 12 different countries. Since exports represent 40% of Gobi’s sales, the declining currency has had a positive impact on their results. We expect their exports to increase more than 20% this year. Plus, tourists in Mongolia usually pay for purchases in dollars or euros, bringing more foreign currency. We have been seeing a lot of shoppers from Russia in Ulaanbaatar as the two countries made an agreement on visa-free travel last year. Source: gogo.mn It is tax free to export cashmere products to European Union and Mongolia has just made an Economic Partnership Agreement (EPA) with Japan in February. It is the first such agreement for Mongolia. Japan charges Mongolian and Chinese cashmere exports at same level of 10.9%. Eliminating this tax gives Mongolian cashmere an opportunity to compete with Chinese products. Minister of Industry D.Erdenebat has invited cashmere producers to actively participate in state and private sector meeting between Mongolia and Japan that will take place in June. Company is opening franchise shops in China, largest competitor on cashmere industry While Mongolian cashmere is competing with Chinese cashmere on exports, China itself is a huge opportunity for Mongolian cashmere for its proximity and growing domestic market. Last year Gobi Cashmere opened its franchise shops in Erlian and Hohhot in Inner Mongolia, China and in January 2015 it opened another one in Xilinhot as well. The company is now seeking opportunities to open stores in Beijing and Shanghai. Management also sees online shopping as one way to tap into Chinese market. BDSec JSC Mongolia’s Largest Broker 4 BDSEC JSC Mongolia’s Largest Broker Gobi Capital Expenditure (billion MNT) 7.4 5.4 3.7 3.5 2.7 2.5 2.0 Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Value Gobi continues to upgrade their factory to increase productivity and to decrease fixed costs since the current management took over remaining stateowned shares in 2007. For the past 8 years, total of MNT 27.2 billion (~US$14 million) investments were made into the Company. In 2014, Gobi successfully upgraded its textile factory, doubling its textile capacity to 300K meters of textile per annum. Cash flow projection 0.2 2007 `08 `09 `10 `11 `12 `13 `14 2014 `15F `16F `17F `18F Domestic Sales 40,777.2 49,502.2 54,933.6 61,464.8 68,084.8 Export Sales 25,829.8 31,648.9 44,945.7 61,464.8 83,214.8 COGS 44,247.1 52,524.2 62,310.7 73,920.7 87,693.9 6,075.6 6,918.0 8,725.2 10,799.4 14,416.0 EBITDA 16,859.0 20,569.4 24,828.2 30,178.7 35,651.7 Earnings before tax 13,377.3 15,967.7 19,652.8 24,188.3 29,770.5 Tax (10% and 25%) 2,885.5 3,541.9 4,463.2 5,597.1 6,992.6 10,491.8 12,425.8 15,189.6 18,591.2 22,777.9 134 159 195 238 292 9,749.0 9,461.9 14,015.7 4,731.0 20,722.4 (million MNT) Source: Gobi JSC, BDSec Operating Cost Net profit after tax Dividend (MNT) Net cash flow NPV @25% discount 87,740,836.9 Shares outstanding 7,801,125 Share price per share (MNT) 11,247.2 Share price per share (US$) 5.8 Source: BDSec estimate We believe Gobi has been undervalued for a long time At MNT 7,615, the Company is just trading at a multiple of 5.7 times earnings and the Company looks capable of keeping its earnings growth at 20-30 percent for years to come. The Company’s market value as at MNT 59.4 billion or US$ 30.6 million. We believe the stock has been undervalued for a long time. For a mature company like Gobi with annual sales of US$ 33.9M, earnings of US$ 5.4M, market share of 40% in Mongolia, franchise shops in more than 20 cities in 12 countries around the world, continuous +20% annual growth rate, we think it is pretty low. With capacity utilization of 67%, the Company has a space to grow. The company has been paying annual dividends (~10% payout) to shareholders every year since 2010. We believe Gobi Cashmere is one of the best picks out there on MSE. PE Comparison of “MSE Top 20” Companies Company Market Cap (bn MNT) Market Price (MNT) P/E ratio Company Market Cap (bn MNT) Market Price (MNT) P/E ratio 6.5 80 276.8 1 Gobi Cashmere (GOV) 59.4 7,615 5.7 11 Genco Tour Bureau (JTB) 2 Material Impex (MIE) 20.8 15,210 7.4 12 State Department Store (UID) 18.4 500 651.8 3 Bayangol Hotel (BNG) 22.0 52,000 7.7 13 Remicon (RMC) 5.7 73 (4.3) 4 Talkh Chikher (TCK) 18.4 18,000 7.9 14 Baganuur (BAN) 42.5 2,025 (6.7) 5 Darkhan Nekhii (NEH) 18.8 17,000 10.1 15 Shivee Ovoo (SHV) 47.0 3,500 (8.2) 6 Hermes (HRM) 10.2 130 12.5 16 Khukh Gan (HGN) 7.3 72 (8.8) 7 Makh Impex (MMX) 11.4 3,000 32.3 17 Sharyn Gol (SHG) 39.7 3,880 (12.8) 8 Telecom Mongolia (MCH) 23.5 907 44.9 18 APU (APU) 253.1 3,407 (17.9) 9 Ulaanbaatar BUK (BUK) 39.5 35,000 52.9 19 MDR (MDR) 6.8 498 (42.9) 189.6 3,600 53.8 20 BDSec (BDS) 28.9 1,700 (59.6) 10 Tavantolgoi (TTL) BDSec JSC Mongolia’s Largest Broker Source: BDSec estimate 5 BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Gobi Cashmere (cont’d) Gobi Cashmere Financials Balance Sheet (`000 MNT) Cash and cash equivalents 2010 `11 `12 `13 `14 746,737.2 1,528,603.3 6,601,483.5 6,487,287.0 16,236,253.3 Total Current Assets 17,988,080.9 23,932,759.9 39,449,226.60 49,431,879.50 66,149,457.30 Fixed Assets 34,199,131.5 43,724,177.8 27,860,786.0 31,057,266.8 33,111,997.3 Total non-current assets 15,673,690.8 28,411,538.0 28,255,726.0 31,795,191.0 33,828,547.9 Total Assets 33,661,771.7 52,344,297.9 67,704,952.60 81,227,070.50 99,978,005.2 Short-term debt 5,157,799.5 3,329,651.4 4,937,474.5 5,242,952.6 18,918,887.3 Long-term debt 4,055,799.6 16,547,183.4 25,829,418.8 32,918,322.0 28,515,659.2 Total Debt 9,213,599.1 19,876,834.8 30,766,893.30 38,161,274.60 47,434,546.50 24,448,172.6 32,467,463.1 36,938,059.3 43,065,795.9 52,543,458.7 Current Ratio 3.49 7.19 7.99 9.43 3.50 Debt Ratio 0.27 0.38 0.45 0.47 0.47 Debt to Equity 0.38 0.61 0.83 0.89 0.90 Price to Book 1.30 0.77 0.52 0.53 0.58 Income Statement (`000 MNT) 2010 `11 `12 `13 `14 Sales revenue 28,894,520.3 35,364,680.2 40,826,785.90 48,758,084.20 65,934,570.40 Cost of sales 21,949,459.0 26,518,322.8 29,709,821.00 32,513,868.20 44,274,738.70 Operational profit 6,945,061.3 8,846,357.4 11,116,964.9 16,244,216.0 21,659,831.7 General and Administrative expense 4,019,295.6 4,943,672.3 5,643,730.50 6,674,635.70 8,895,004.70 Net Profit after tax 3,360,901.9 1,704,476.3 5,250,708.70 7,102,877.20 10,491,809.20 Shareholders' Equity Earnings per share (MNT) 431 218 673 910 1,345 Dividend per share (MNT) 0 100 125 130 140 NA 46% 19% 14% 10% Gross Profit Margin 24% 25% 27% 33% 33% Net Profit Margin 12% 5% 13% 15% 16% Return on Assets 10% 3% 8% 9% 10% Return on Equity 14% 5% 14% 16% 20% Price to Earnings 13.0 23.6 6.7 6.1 5.7 Cash flow statement (`000 MNT) 2010 `11 `12 `13 `14 3,013,240.0 1,099,128.2 -2,856,468.6 113,737.5 -4,654,907.9 (2,821,717.9) (2,658,357.4) -6,145,484.2 -741,282.0 -2,914,621.2 3,816.9 2,341,095.2 14,128,857.2 513,348.0 17,318,495.4 Net cash flow 195,339.0 781,866.0 5,126,904.4 (114,196.5) 9,748,966.3 Cash and cash equivalents at 1 January 551,398.3 746,737.2 1,528,603.2 6,601,483.5 6,487,287.0 Cash and cash equivalents at 31 December 746,737.3 1,528,603.2 6,655,507.6 6,487,287.0 16,236,253.3 Dividend payout ratio Net cash flows from operating activities Net cash flows used in investing activities Net cash flow from financing activities Source: Gobi, BDSec estimate BDSec JSC Mongolia’s Largest Broker 6 BDSEC JSC Mongolia’s Largest Broker Gobi Cashmere (GOV:MSE) - BUY May 20, 2015 Institutional Sales & Research Department phone/fax: 976-11323411 mail: [email protected] Nick Cousyn Chief Operating Officer email: [email protected] Munkhtulga Ganbold Head of Institutional Sales Email: [email protected] O.Odbayar Analyst email: [email protected] J.Sainbayar Dealer email: [email protected] BDSec Headquarter Zaluuchuud Avenue 27-1 8th Khoroo, Sukhbaatar District Ulaanbaatar, Mongolia Phone/Fax: 976-11313108 Website: www.bdsec.mn Disclaimer The information contained in this report is for general information purposes only. This report and its content is copyright of BDSecurities and all rights reserved. This report- in whole or in part- may not, except with the express written permission of BDSecurities be reproduced or distributed or commercially exploited in any material form by any means whether graphic, electronic, mechanical or any means. Nor may you transmit it or store it in any other website or other form of electronic retrieval system. Any unauthorised use of this report will result in immediate proceedings. This publication contains forward-looking statements that involve known and unknown risks and uncertainties. These statements are based on our own information and on information from other sources we believe to be reliable and generally indicated by the use of forward-looking terminology such as “believe”, “expect”, “estimate”, “plan”, “project”, “may”, “will”, “should” or other similar words that express an indication of actions or results of actions that may or are expected to occur in the future. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this publication. Any opinions or estimates herein reflect the judgment of BDSec at the date of the publication and are subject to change at anytime without notice. The report has been prepared by BDSecurities Joint Stock Company. The information and opinions contained herein has been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness, reliability or suitability. All such information and opinions are subject to change without notice. This document is for information purposes only, descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. In no event will BDSecurities be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising out of, or in connection with the use of this report and any reliance you place on such information is therefore strictly at your own risk. BDSecurities may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis in which they are based before the material is disseminated to their customers. Not all customers will receive the material at the same time. BDSecurities, their respective directors, officers, representatives, employees, related persons and/or BDSecurities, may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principal or agent. BDSecurities may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. BDSecurities may have recently underwritten the securities of an issuer mentioned herein. BDSec JSC Mongolia’s Largest Broker 7
© Copyright 2024