the_public_warehousing_company__KSC_ by nuhman10



Subject          : The Public Warehousing Company KSC (Agility) – Investment

Prepared by      : Global Investment House “Global”
Date             : October 2008

   Global values Agility stock at KD1.238 and maintains „Buy‟ on the stock

Global Investment House – Kuwait - The Public Warehousing Company KSC
(Agility): The Public Warehousing Company KSC (Agility) has reported a double digit
growth in revenue in 2007. It reported revenue of KD1,667.1mn as against our estimate
of KD1,612.2mn. The company registered a net profit of KD153.9mn in 2007 as
compared to our estimate of KD171.5mn. The revenue was 3.4% higher than our
estimate and net profit was below our expectations by 10.3%. The net profit for the
period was KD72.7mn, down 9.5% from KD80.3mn in 1H07. Resultantly, the net
margin for the period was lower at 8.0%, down from 10.0% in same period previous year.
The value of the stock derived from the weighted average of the DCF and peer
comparison methods is KD1.238 per share. The stock trades at a current market price of
KD0.770 (as on 23rd Oct’08), which implies that the weighted average value of Agility’s
shares is at a premium of 60.8% to the share’s current market price of KD0.770 (as on
23rd Oct’08). It is noteworthy however that the stock price has slided in value following
recent stock market decline in Kuwait Stock Exchange and hence it is trading at cheap
forward valuation multiples at prevailing price level. At the current price, Agility’s stock is
trading at forward P/E multiples of 5.3x and 5.6x the estimated 2008 and 2009 earnings
respectively and forward P/B multiples of 0.91x and 0.88x the estimated 2008 and 2009
book value per share respectively. At its prevailing price levels, since it provides a
potential upside we maintain our earlier ‘BUY’ recommendation on the Agility stock.

Financial Performance –FY07

Logistics, Freight and project forwarding services revenue increased by 25.2% on a YoY
basis from KD1,271.8mn in 2006 to KD1,591.9mn in 2007. The majority of this growth
was driven by the Defense & Government Services contract wins in last couple of years
and inorganic growth on account of acquisitions during the period. Rental revenues were
up by a marginal 0.9% from KD23.2mn in FY06 to KD23.4mn in FY07.

Revenues from Customs consulting however registered a whopping 137.2% growth on the
back of superior performance through sale of fuel under the UN contract increasing from
KD21.8mn in FY06 to KD51.8mn in FY07. Also, this was supported by the growth in the
National Aviation Services that displayed an individual YoY growth rate of 42.0% and
Metal & Recycling Company (YoY growth of 18.0%). As a proportion of revenues it has
increased from 1.6% in 2006 to 3.1% in 2007. Gross Margins decreased from 37.4% in
2006 to 36.5% owing to increase in the volume of low margin freight forwarding contracts
in the total revenues.

The overall SG&A expenses clocked KD384.3mn in 2007, a 34.2% increase over
KD286.4mn in the previous year whereas the revenues had grown by 25.7%. As a
percentage of the total revenues, the operating expenses were higher at 23.1% in 2007
compared to 21.6% in 2006 on account of higher staff and travel costs.

The EBITDA margin declined from 15.8% in 2006 to 13.5% in 2007. The EBITDA was
KD209.2mn and KD 224.3mn in 2006 & 2007 respectively. Operating margin also
declined from 13.2% in 2006 to 10.4% in 2007. This significant decline in the operating
margin was mainly due to the increasing share of low-margin freight forwarding business in
the total revenues of the company.

Agility’s net income shrunk by 7.6%; from KD166.5mn in 2006 to KD153.9mn in 2007
owing to a higher cost of revenue of 63.5% in 2007 compared to 62.6% in 2007 and a
higher operating expenses ratio of 23.1% in 2007 as compared to 21.6% in 2006. In line
with decline in operating margin, the net margin also declined from 12.6% in 2006 to 9.2%
in 2007.

Agility’s total assets continued to grow at a double digit rate. The total asset base of the
company grew 16.3% to reach KD1.5bn at the end of 2007, up from KD1.3bn in 2006.
The borrowings made by the company increased by KD93.3mn. The shareholders’ equity
rose during the year by KD68.8mn or 10.0% to reach KD756.9mn at the end of 2007.

Financial Performance –1H08

Agility recorded revenue of KD905.2mn in 1H08, a YoY increase of 13.3%. The growth
was mainly due to various new contract awards and logistics and freight forwarding
acquisitions made by the company. Revenue from logistics and freight forwarding
increased 12.3% on a YoY basis to reach KD858.9mn in 1H08. The share of this
segment in total revenues declined from 95.7% in 1H07 to 94.9% in 1H08.

Rental revenue increased by 17.6% to reach KD13.2mn in 1H08. Other revenues
including customs consulting and miscellaneous services increased by 43.0% to reach
KD33.0mn in 1H08 from KD23.1mn in 1H07. The net profit for the period was
KD72.7mn, down 9.5% from KD80.3mn in 1H07. Resultantly, the net margin for the
period was lower at 8.0%, down from 10.0% in same period previous year.

The company management believes that they would see the results of the integration
percolating into higher profit levels for the company starting 2010 and 2011. We believe
that Agility should now latch upon to their long range plan to integrate the acquired
companies and implement stringent cost cutting and cost control measures to enhance
profits and win back the investor confidence.

Investment Indicators

                                                                                                                             52-week price range
  Price as at October 23, 2008 (KD)         Shares in Issue (mn)                   Market Cap (KD mn)                          Low/High (KD)

                0.770                              1,046.8                         806.1                                        0.740 - 1.491

                           Revenue        Net Profit
                           KD’000          KD’000                     EPS (fils)     BVPS (fils)      ROE                   P/E (x)      P/BV (x)

2009E                      1,880,391.7      130,029.4                       137             877      15.9%            5.6                       0.9

2008E                      1,807,338.0      138,157.9                       145             846      17.7%            5.3                       0.9

2007A                      1,667,090.1      153,941.1                       162             796      21.3%            7.7                       1.6

2006A                     1,325,976.0       166,517.0                       175               723      27.0%           7.3                     1.8
Source: Bloomberg, Company Reports and Global Research
Historical P/E and P/BV multiples pertains to respective year end prices, while those for future years are based on market price as on October 23,


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