Sanok RC held a meeting with analyst.
The quite pessimistic outlook of the management was in our opinion clearly visible. The company sees the burden of labour costs, materials and currency.
- After described earlier wage hike (+9% in July) the company is forced to increase wages even further with some (several %) increases in November and planned for 1Q 18.
- The company is much more pessimistic about raw materials (EPDM rubber, natural rubber, soot, plastics, metals) and expects on average 5-10% increase in 2018.
- This means that the contracts signed 2-3 years ago may have significantly lower profitability. Chances for price increases in automotive are limited.
- Chinese subsidiary generates strong loss (PLN -7m in 1-3Q17) and in our opinion this will not change in 2018.
- Draftex net loss should decrease from around PLN -13m expected in 2017 to around PLN -7m in 2018.
- Greenfield in Mexico started. Initial capex at around PLN 20m . The start-up will burden 2018 results with several m PLN and will add to sales several EUR m.
- Our outlook for 2017 is unchanged: sales: PLN 996m, Ebitda: PLN 151m, Ebit: PLN 114m, net profit: PLN 90m (P/E: 13.6 EV/Ebitda: 8.1)
- We still expect decrease of results in 2018 (but now a little sharper): sales: PLN 1058m, Ebitda: PLN 138m, Ebit: PLN 99.5m, net profit: PLN 80m (P/E: 15.3, EV/Ebitda: 8.8)
Summary: Today we removed Sanok RC from our top sells list. The stock fell close to the fair price levels. However we regard the outlook presented today (process of margins normalization transforms into above average burden on margins) as rather grim and the company may remain weak in short/medium term. (slightly negative)