Karachi, August 30, 2021 (PPI-OT): Distribution – Air Link Communication Limited: ‘Subscribe’ till PKR 78/share
Air Link Communication Limited has filed for listing via book building schedule on 30th and 31st of August, 2021.
The Company is offering 90mn shares (25% of total post-IPO paid-up capital) at a floor price of PKR 65/share, of which 30mn through offer for sale.
We recommend a ‘Subscribe’ to the offer on Air Link Communication Limited up to PKR 78/share.
Air Link to raise PKR 5.8bn to meet its working capital needs
Air Link Communication Limited has filed for listing via book building schedule on 30th and 31st of August, 2021.
The total issue is PKR 5.8bn at a floor price of PKR 65/share and 90mn shares. The transaction structure is hybrid in nature, constituting both 60mn shares (and PKR 3.9bn) of ‘new issue’ and remaining 30mn (or PKR 1.9bn) will be ‘offer for sale’. Proceeds of PKR 3.9bn will be utilised entirely for financing of working capital requirements, including inventory purchase for extending company’s distribution network.
‘Based on our initial take, we recommend a ‘subscribe to the offer’ up to PKR 78/share’
We recommend a ‘Subscribe’ to the offer on Air Link Communication Limited up to PKR 78/share. We base our subscription price on discounted market multiple at 7.45x. From valuation stand point, at a floor price of PKR 65/share, the company forward P/E comes at 6.2x and 4.2x for FY22 and FY23.
About the Company and expansion
Air Link communication Limited is a leading distributor of mobile phones having a strong presence in Pakistan with service centres across the country.
The company imports and distributes mobile phones and accessories, with well-known brands including Huawei (revenue share: 7%), Samsung (49%), Apple (4%), Xiaomi (8%) mobile phones and accessories in Pakistan. Being the leading and largest distributor the company has a market share of 20%-25%.
Distribution and retail network: The Company has a countrywide distribution network, consisting 16 regional hubs linked to 1,000+ wholesalers and 4,000+ retailers, to facilitate nationwide sales of mobile phones and accessories. As of 2020, company operates 14 retail outlets in major cities, and plans to stretch it to 150 outlets by FY26.
Assembling facility: The Company has set up an assembling facility (PKR 423mn) of 4G smartphones and feature phones having installed capacity of more than 400,000 units per month approximately in Lahore which has commenced commercial operations in April 2021. In addition, the Company has been authorised by Itel and TCL to assemble their mobile phones in the said facility and is in the process of obtaining authorization from other Vendors.
Industry Outlook
Given the rising growth in mobile phone usage and low penetration in country, Air Link has witnessed an impressive 25% cagr over the past 3years. With smartphone penetration of 35%, Pakistan offers a sizeable opportunity considering its regional peers average of 42%. This low penetration levels is due to limited outreach of 3G/4G services. Now, improving demand of smart phone in the wake of increasing 3G/4G subscriber base has led vendors to ship 4-G enabled models. As of Sep-2019 there were about 72.1mn (32% of the population) 3G/4G subscribers, PTA cited. In addition to growing demand, the smartphone market is getting competitive given low cost smart phones and wide variety of consumer’s choices. Moreover, increasing demand will ultimately lead to increasing number of SIMS registered per 100 person. Lastly, due to overwhelming response and increasing demand of 3G/4G by consumers, preparation to test 5G cellular connectivity has commenced and country plans to launch 5G technology by 2021.