We have been writing odes to the country’s re-energised textile sector for a while now. And it seems that the positive vibes sent out by the soon-to-be gold sector have not escaped the notice of savvy international investors either.
Amid rampant speculation that Chinese buyers were looking to invest in the thriving Pakistani textile landscape came the news that Shandong Ruyi Technology-–headquartered in mainland China—intended to buy a majority stake in Masood Textile Mills Limited—one of the most technologically advanced albeit little known composite textile mills in the country.
The notice put up by KSE on Friday detailed that the Chinese firm intended to acquire 31.2 million shares—which approximate to 52 percent of the 60 million issued and paid-up shares of MTM.
From the point of view of Shandong Ruyi Technology, there are perhaps very few textile mills in the country that present the kind of synergies Masood Textiles does and let us tell you why?
While the company’s financial statements and website do not disclose the breakdown in detail, Yasir Khan from AKD Securities—the firm acting as managers to the offer said MTM is a purely export intensive operation, with yarn dispatches making up less than 10 percent of the company’s export revenue.
The lion’s share of the firm’s revenues is hence composed of value added and specialty items including weaved cloth and apparel, sent mainly to America and Canada. EU currently accounts for around 4-6 percent of the firm’s top line, but Pakistan’s prospective inclusion in the list of nations allowed tariff free entry into Europe will potentially blow up the market wide open.
We also believe that the existing client portfolio of MTM must have been a major draw for the Chinese firm. Masood Textiles already counts major North American heavyweights such as JC Penny, Walmart Addidas, Puma, Levis, Dockers, Fruit of the Loom and Reebok amongst its clients. Additionally, the firm is amongst the very few in Pakistan which sells to stores directly and monitor sales patterns online before restocking—which brings down the cost of inventory for buyers.
But the list of good things about MTM doesn’t just stop there. The firm’s books are also on solid footings, with turnover at the close of CY12 standing at Rs19.3 billion—nearly 144 percent higher than 2008. The company has also paid dividends to shareholders at a uniform rate of 15.5 percent for each of the last three years—a trend quite unprecedented in the apparel sector.
Talking to BR Research, Jehanzaib Zafar from BMA Capital also pointed out that MTM was amongst the most cost efficient textile operations in the country at the moment. The firm’s fuel costs to sales ratio during CY13 at 4.74 percent was in fact the lowest amongst its peers.
So, while the rest of the mid-tier textile players are only now scrambling to find out ways to beat the rising fuel prices and make a killing off the improved sector dynamics, MTM has already been enjoying the bounties for a while due to judicious operational management. Going forward, sources report that the firm has already invested into a bio-fuel plant, which in tandem with its coal-fired power plant will make MTM one of the most profitable textile players in the country.
The above mentioned fundamentals in combination with the Chinese firm’s advances have in fact already helped garner MTM some major (and dubious) attention at the local bourses. Mostly ill-liquid, MTM’s stock price has been rallying quite suspiciously since November 27—when in fact the KSE notice was only put up much later on the 6th of December.
However, managers to the offer have waved away the insinuation of fishy goings, explaining that Shandong Ruyi had been vetting MTM for a while and that market players were already aware of this development since it was no secret.
Subsequently the firm’s share price has rallied up due to speculation, whereas volumes have remained flattish. But, straight or not, the attention will do MTM a load of good. Opposed to the current price—which stood at Rs78/share share at the end of Tuesday’s trading session—the analyst community believes that MTM should be able to fetch a price between Rs85-Rs100 per share as a result of its new found ‘fame’.