Masood Textile Mills (MSOT) – the stock needs a breather!

Masood Textile Mills (MSOT) is a large textile composite company encompassing activities from spinning to processing to finishing to ready-made garments. It is located in Faisalabad, the epicenter of the textile industry of Pakistan. The company has a large clientele including brand names like Ralph Lauren, Levi’s, Kohl’s, Walmart, Aeropostale, Puma, Jockey, Dockers, Adidas, Nautica and others.

Recently, Shandong Ruyi Technology Group, a Chinese company has expressed its intention to acquire majority shareholding in Masood Textiles. It is going to be the first such investment by China in the textile industry of Pakistan. Masood Textile Mill is the 7th largest listed textile mill with assets of over PKR19bn. Revenues of the company have exhibited a growth of ~24% (5yr CAGR) over 2008-13 to reach PKR23bn. MSOT posted return on equity (ROE) of 18% and return on assets (ROA) of 4.7% in 2013. Its debt to equity stood at 74:26 as posted on KSE’s website. MSOT recorded a payout of 11% or PKR1.75/share as dividend last year.

Textile exports have grown by 7.5% over the first 4 months of the current fiscal year (July-Oct) compared to last year. Continued growth in the yarn business and rupee depreciation can easily lead to a 10% growth in Masood Textiles’ turnover during 2014 and earnings per share (EPS) of over PKR16.5/share. The recent rally in the stock price (on the acquisition announcement) has led to its forward price-to-earning (PER) ratio to climb to 4.7x from 3.5x a week earlier. News regarding GSP Plus status has further triggered the textile sector at the bourse.

I believe the stock should take a breather here considering that it is currently trading at par with the bigger names based on multiples. Additionally it is also trading at close to its book value (PKR85/share).

Ratios	FY13A	FY14E
Sales (PKRbn)	23	25
EPS (PKR/share)	15.1	16.7
DPS (PKR/share)	1.75	2.5
Sales Growth YoY	18%	10%
Payout	11%	15%
ROE	18%	N/A
ROA	4.7%	N/A
Equity/Assets (x)	0.26	N/A
BVPS (PKR/share)	85	N/A
PER (x)	5.2	4.7
PBV	0.92	N/A
Source: KSE Downloads