Patrick Industries Inc.
(NASDAQ: PATK)
Qianyi (Cathy) Han
Guanrong (Rachel) Fu
Jingfeng (Jeffrey)Li
Presented: April 29, 2014
AGENDA
Business Overview
Macro-Economic & Industry Overview
Technical Analysis
Financial Ratios
Valuation
Recommendation
BUSINESS OVERVIEW
 Incorporated in 1959, in Indiana
 3600 employees
 Market Cap : $455MM
 16 Warehouse and distribution centers & 18
manufacturing operations
 Business :
 Manufacturing: Suppliers to other industrial
markets, such as household furniture and
manufactures for various products, such as
hardwood furniture
 Distribution: Wholesale distributor of pre-finished
walls and other miscellaneous products
Source: PATK 10-K Report, CapitalIQ
MH Industry
16%
Industrial
Markets
12%
RV Industry
72%
PRODUCT OVERVIEW
Source: PATK 10-K Report
PRODUCT OVERVIEW
Source: PATK Website
ACQUISITION OVERVIEW
Source: PATK 10-K Report
SALES NEWORK
Source: PATK 10-K Report
FINANCIAL OVERVIEW
Net Sales
 Consistent growth
 Improving total return
 Significant increase in RV industry
 Stable Growth in MH and Industrial market
Source: PATK 10-K Report
MACROECONOMIC OVERVIEW
 Recovery from recession
 Consumer discretionary income
 Global trend of time and money spent on leisure
 Credit regulations and lending in housing starts and mortgage market
aided by Fed
 Price of gasoline and diesel fuel
 Price of raw material/commodity: wood, steel, fiberboard, gypsum
Source: IBIS World
INDUSTRY OUTLOOK
 Manufactured housing:
 Rebound from weaker demands in housing starts back to 2009 and
2010
 Increased substantially (32.9%) in 2012 following the recovery of
recession
 Private spending in housing construction and improvement is expected
to grow till 2019
 Greater sales of existing housing will stimulate the renovation
 Lower cost of construction than site-built homes
Source: Manufactured Housing Institute
IBIS World, Manufactured Home Dealer in US
INDUSTRY OUTLOOK
 Recreational vehicle:
 Financial crisis disrupted credit flows
and lowers buyers capacity to finance
their RV purchases
 After 2013, RV sales is expected to
grow at 3.2% steadily
 Shipment declines from 2007 to 2009,
but rebound from 2009 to 2012 by 72%
Source: Recreational Vehicle Industry Association
IBIS World, Recreational Vehicle Dealer
INDUSTRY OUTLOOK
Recreational vehicle:
Number of aging (35-54)
consumers enter retirement (babyboomers)
Lifestyle trend: healthy, outdoor
activities, pet friendly, quality family
time
Cost Comparisons of Vacations Using Recreational Vehicles Versus Other Types of
Vacations (4-Person Travel Party)
Vacation Mode of Travel
3 Days
7 Days
14 Days
$721
$1,634
$3,158
$880
$1,997
$3,854
$880
$2,035
$4,033
$930
$2,149
$4,232
$1,128
$2,906
$5,456
$2,958
$4,045
$6,792
&
&
Source: Recreational Vehicle Industry Association
IBIS World, Recreational Vehicle Dealer
Source: PFK Consulting, USA
 Increase in market share through strategic
acquisition
 Stable cost structure and brand reputation
 Facing fierce competition
Decline
Maturity
Growth
Introduction
 Maturity stage in RV and MH:
Total Industry Revenue
INDUSTRY LIFE CYCLE
Time
Source: Recreational Vehicle Industry Association
IBIS World, Recreational Vehicle Dealer
PORTER’S FIVE FORCES
Competition: HIGH
Substitute:
MEDIUM
• Few patent and
rights
• RV versus rental
cars and airlines
• Many
manufacturers
and distributors
provide similar
products
• MH versus
alternative
housing: site-built
home and
townhouse,
apartment rentals
Source: Patrick Industries, 10-K. 2013
Bargaining power
of Suppliers:
MEDIUM
• Wide range of
raw material
suppliers and low
differentiation:
steel, plastic
• Relationship with
different suppliers
to reduce too
much
dependence
Bargaining power
of Buyers: HIGH
• End-users are
sensitive to price
• Forecast interior
design trend may
change every
year
• Easily supplanted
by next year’s
new model
Entry barrier:
MEDIUM
• Does not require
high technology
and innovation
• Expansion to new
product lines
through
acquisition
SWOT ANALYSIS
Strengths
Weaknesses
•
Competitive price with high quality standards
•
Not concentrated in few product types
•
•
High degree of flexibility from suppliers
“Customer 1st” performance oriented culture to
retain talents
Strategic acquisition to support new product
lines and expansion into new markets at existing
logistic network
•
Too many brand names from acquisition
•
High concentration at RV industry
•
Opportunities
Threats
•
•
Diversification and flexibility to operate in other
industrial markets
•
•
•
Plant expansion increases capacity utilization
and production of better functional building
products
Increasing in the baby boomer population
Source: Patrick Industries, 10-K. 2013
•
Sensitive to world economy and consumer
sentiment
Forecast based sales requires accurate
estimation and quick adaptation to new models
Possible decline in popularity of camping and
motor home travel due to high gasoline price
TECHNICAL ANALYSIS
Source: Yahoo! Finance
FINANCIAL RATIOS
PATK Corp – Liquidity Ratios
Field
Current Ratio
Quick Ratio
Cash Ratio
2011A
2.236
0.850
0.028
2012A
2.527
0.915
0.015
2013A
2.706
0.962
0.001
2011A
4.38%
2.75%
9.88%
29.37%
2012A
6.18%
6.42%
19.58%
45.75%
2013A
6.88%
4.04%
13.80%
29.21%
2011A
0.38
1.14
3.02
2012A
0.35
0.81
6.70
2013A
0.32
0.67
18.86
2011A
21.72
38.10
16.80
13.40
3.59
2012A
24.49
46.15
14.90
11.80
3.05
2013A
26.27
40.93
13.89
14.13
3.42
PATK Corp – Profitability Ratios
Field
Operating Profit Margin
Net Income Margin
ROA
ROE (Book Value)
PATK Corp – Solvency Ratios
Field
Debt/Assets
Debt/Equity
Interest Coverage
PATK Corp – Activity Ratios
Field
A/R Turnover
Days Sales of Inventory
Days Sales Outstanding
Fixed Asset Turnover
Total Asset Turnover
Source: Patrick Industries, 10-K. 2013
FINANCIAL RATIOS
PATK Corp – DuPont Ratios
Field
Tax Burden
Interest Burden
Operating Margin
Asset Turnover
Leverage Ratio
Return on Equity
2011A
101.96%
61.65%
4.38%
3.59
2.97
29.37%
2012A
132.08%
78.67%
6.18%
3.05
2.34
45.75%
2013A
62.00%
94.70%
6.88%
3.42
2.12
29.21%
2011A
149.7
58.64%
9.00%
2012A
216.5
72.95%
12.49%
2013A
522.3
97.22%
7.84%
PATK Corp – Greenblatt Ratios
Field
TEV
EBIT / Tangible Assets
EBIT/TEV
Source: Patrick Industries, 10-K. 2013
VALUATION - COMPS
CY
CY
CY
Revenue EBITDA EPS
Price ($)
4/28/2014
Ticker
Company Name
TRS
BC
DW
AMWD
Mean
TriMas Corporation
32.30
Brunswick Corporation
40.47
Drew Industries Incorporated50.01
American Woodmark Corp. 30.99
52Week
High
Market
Cap
($mm)
4/17/2014
42.1
47.7
55.4
40.0
1,461
3,751
1,181
482
($mm)
($mm)
Net
Debt
($mm)
Enterprise
Value
($mm)
4/17/2014
2013A
2013A 2013A
279
232
-66
-101
1,769
3,984
1,115
380
1,395
3,888
1,016
709
163
413
110
44
($)
1.85
8.43
2.15
1.33
Median
PATK
Patrick Industries
41.37
45.9
Source: Patrick Industries, 10-K. 2013
441
47
489
595
48
2.24
EV / CY
EV / CY
Revenue
EBIT
P/E
P/B
2013A
2013A
2013A
2013A
1.27x
1.03x
1.10x
0.54x
0.98x
15.37x
12.30x
13.57x
11.29x
13.13x
25.28x
21.12x
23.23x
23.21x
23.21x
2.65x
3.45x
3.73x
2.67x
3.12x
1.06x
12.93x
23.22x
3.06x
0.78x
11.67x
17.92x
4.90x
Company Name
TriMas Corporation
Brunswick Corporation
Drew Industries Incorporated
American Woodmark Corp.
Weights
on
multiple
20.00%
20.00%
40.00%
20.00%
100.0%
VALUATION - COMPS
Multiple
Value
Price (using
subjective
weights)
23.2x
$51.99
EV/Revenue –
25%
1.0x
$50.67
EV/EBITDA –
25%
13.2x
$45.31
3.2x
$24.88
Multiple
P/E – 25%
P/B – 25%
Estimated
Share Price
$43.21
VALUATION – Discount Rate
Beta Regression
Beta
5 Year
2 Year
1 Year
Half Year
One Month
Beta on Yahoo
Adj. Beta
Capital Structure
0.98
1.87
1.46
1.24
2.18
1.1
1.20
PATK Return
5Year (annualized)
135.5%
2 Year (annualized)
80.3%
1 Year (annualized)
111.5%
Half Year
25.3%
Three Month
0.17099
One Month
-5.3%
Source: Patrick Industries, 10-K. 2013
Yahoo! Finance
Debt
Equity
Total
55,000
444,024
499,024
11.0%
89.0%
100.0%
Discount Rate
Risk Free
Market Risk Premium
PATK Return to Owners
CAPM
Cost of Equity
Cost of Debt
Tax Rate
After tax Cost of Debt
2.73%
7.0%
20.0%
11.1%
12.02%
3.8%
38%
2.3%
WACC
Risk Premium
10.949%
2.0%
Discount Rate
12.9%
10%
90%
VALUATION – Projections
VALUATION – Projections
Income Statement (% of Sales unless noted)
NET SALES
Cost of goods sold
GROSS PROFIT
Warehouse and delivery
Selling, general and administrative
Income tax expense (Tax Rate)
Income Statement (% of Sales unless noted)
NET SALES
Cost of goods sold
GROSS PROFIT
Warehouse and delivery
Selling, general and administrative
Income tax expense (Tax Rate)
Source: Patrick Industries, 10-K. 2013
89.23%
10.77%
4.82%
5.71%
7.93%
Historical figures
2010A
2011A
2012A
31%
11%
42%
89.35% 85.61% 84.97%
10.65% 14.39% 15.03%
4.20%
4.43%
3.61%
4.97%
5.39%
4.95%
-7.07%
-1.96% -32.08%
2013A
36%
84.70%
15.30%
3.39%
4.70%
38.00%
2014P
Forecast Figures
2015P
2016P
2017P
2018P
2009A
20.00%
15.00%
10.00%
8.00%
5.00%
85.00%
84.00%
83.00%
82.00%
82.00%
15.00%
16.00%
17.00%
18.00%
18.00%
3.50%
3.68%
3.86%
4.05%
4.25%
4.70%
4.68%
4.66%
4.64%
4.62%
38.00%
38.00%
38.00%
38.00%
38.00%
VALUATION - DCF
2014
2015
2016
2017
2018
27,284
35,678
43,928
52,444
53,907
7,297
7,479
7,666
7,858
8,055
(8,000) (8,200)
(8,405)
(8,615) (8,831)
12,814
10,024
10,553
8,090
7,120
$ 39,395 $ 44,981 $ 53,742 $ 59,777 $ 60,250 $
$ 34,879 $ 35,259 $ 37,297 $ 36,729 $ 32,776 $
Discount rate
Terminal Value Growth Rate
Implied Equity Value
Less: Debt
Implied Market Cap
482,280
55,000
$ 427,280
Share outstanding
Implied share price
10,733
$ 39.81
Valuation Summary
Weight Stock Price
50% $ 39.81
Source: Patrick Industries, 10-K. 2013
DCF
561,297
305,341
12.95%
2.0%
Growth rate
Net Income
Depreciation
CapEx
Change NWC
FCF
PV FCF
Terminal
Discounted Cash Flow Sensitivity Analysis
Discount Rate
$39.81
10.95%
11.95% 12.95%
13.95%
1.00% $ 46.16 $
41.25 $ 37.17 $
33.72
1.50% $ 48.13 $
42.81 $ 38.43 $
34.75
2.00% $ 50.32 $
44.53 $ 39.80 $
35.87
2.50% $ 52.77 $
46.43 $ 41.31 $
37.09
3.00% $ 55.53 $
48.54 $ 42.97 $
38.42
$
$
$
$
$
14.95%
30.77
31.63
32.55
33.55
34.63
VALUATION - Result
Current Stock Price: $41.73
Our Valuation: $41.51
Valuation Summary
Weight
DCF
50%
Comparable Analysis
50%
Weighted Value
Stock Price
$ 39.81
$ 43.21
$ 41.51
RECOMMENDATION
WATCH LIST
Future Outlook and Concerns
• Stable growth in RV industry against high energy costs
• Any cost saving from acquisition in the future (e.g.. SG&A)
• Opportunity to diversify into other industrial markets
Source: Patrick Industries, 10-K. 2013