patrick industries inc. (nasdaq: patk)

Patrick Industries Inc.(NASDAQ: PATK)

Qianyi (Cathy) Han

Guanrong (Rachel) Fu

Jingfeng (Jeffrey)LiPresented: April 29, 2014

AGENDA

Business OverviewMacro-Economic & Industry OverviewTechnical AnalysisFinancial RatiosValuationRecommendation

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 productsRV

Indus-try

72%

MH Industry16%

Industrial Markets12%

Source: PATK 10-K Report, CapitalIQ

BUSINESS OVERVIEW

Source: PATK 10-K Report

PRODUCT OVERVIEW

PRODUCT OVERVIEW

Source: PATK Website


ACQUISITION OVERVIEW


SALES NEWORK

Net Sales

Consistent growth

Improving total return Significant increase in RV industry

Stable Growth in MH and Industrial market


FINANCIAL OVERVIEW

MACROECONOMIC OVERVIEW

Recovery from recessionConsumer discretionary incomeGlobal trend of time and money spent on leisureCredit regulations and lending in housing starts and mortgage market

aided by FedPrice of gasoline and diesel fuelPrice of raw material/commodity: wood, steel, fiberboard, gypsum

Source: IBIS World

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 InstituteIBIS 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 AssociationIBIS World, Recreational Vehicle Dealer

INDUSTRY OUTLOOK

INDUSTRY OUTLOOKCost 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: PFK Consulting, USA


Recreational vehicle:

Number of aging (35-54) consumers enter retirement (baby-boomers)

Lifestyle trend: healthy, outdoor activities, pet friendly, quality family time

INDUSTRY LIFE CYCLE

Maturity stage in RV and MH:

Increase in market share through strategic

acquisition

Stable cost structure and brand reputation

Facing fierce competition

Intr

oduc

tion

Grow

th

Mat

urity

Decl

ine

TimeTo

tal I

ndus

try

Rev

enue


PORTER’S FIVE FORCES

Competition: HIGH

• Few patent and rights

• Many manufacturers and distributors provide similar products

Substitute: MEDIUM

• RV versus rental cars and airlines

• MH versus alternative housing: site-built home and townhouse, apartment rentals

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

Source: Patrick Industries, 10-K. 2013

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

• 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


SWOT ANALYSISStrengths Weaknesses

• Competitive price with high quality standards

• 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

• Not concentrated in few product types

• Too many brand names from acquisition

• High concentration at RV industry

Source: Yahoo! Finance

TECHNICAL ANALYSIS


FINANCIAL RATIOSPATK Corp – Liquidity RatiosField 2011A 2012A 2013ACurrent Ratio 2.236 2.527 2.706Quick Ratio 0.850 0.915 0.962Cash Ratio 0.028 0.015 0.001

PATK Corp – Profitability RatiosField 2011A 2012A 2013AOperating Profit Margin 4.38% 6.18% 6.88%Net Income Margin 2.75% 6.42% 4.04%ROA 9.88% 19.58% 13.80%ROE (Book Value) 29.37% 45.75% 29.21%

PATK Corp – Solvency RatiosField 2011A 2012A 2013ADebt/Assets 0.38 0.35 0.32Debt/Equity 1.14 0.81 0.67Interest Coverage 3.02 6.70 18.86

PATK Corp – Activity RatiosField 2011A 2012A 2013AA/R Turnover 21.72 24.49 26.27Days Sales of Inventory 38.10 46.15 40.93Days Sales Outstanding 16.80 14.90 13.89Fixed Asset Turnover 13.40 11.80 14.13Total Asset Turnover 3.59 3.05 3.42

FINANCIAL RATIOS


PATK Corp – DuPont RatiosField 2011A 2012A 2013ATax Burden 101.96% 132.08% 62.00%Interest Burden 61.65% 78.67% 94.70%Operating Margin 4.38% 6.18% 6.88%Asset Turnover 3.59 3.05 3.42Leverage Ratio 2.97 2.34 2.12Return on Equity 29.37% 45.75% 29.21%

PATK Corp – Greenblatt RatiosField 2011A 2012A 2013ATEV 149.7 216.5 522.3EBIT / Tangible Assets 58.64% 72.95% 97.22%EBIT/TEV 9.00% 12.49% 7.84%


VALUATION - COMPS

Company Name

Weights on

multipleTriMas Corporation 20.00%Brunswick Corporation 20.00%Drew Industries Incorporated 40.00%American Woodmark Corp. 20.00%

100.0%

CY Revenue

($mm)

CY EBITDA ($mm)

CY EPS ($)

EV / CY Revenue

EV / CY EBIT P/E P/B

Ticker Company NamePrice ($)4/28/2014

52-Week High

Market Cap

($mm)4/17/2014

Net Debt

($mm)

Enterprise Value ($mm)

4/17/2014 2013A 2013A 2013A 2013A 2013A 2013A 2013A

TRS TriMas Corporation 32.30 42.1 1,461 279 1,769 1,395 163 1.85 1.27x 15.37x 25.28x 2.65xBC Brunswick Corporation 40.47 47.7 3,751 232 3,984 3,888 413 8.43 1.03x 12.30x 21.12x 3.45xDW Drew Industries Incorporated50.01 55.4 1,181 -66 1,115 1,016 110 2.15 1.10x 13.57x 23.23x 3.73xAMWD American Woodmark Corp. 30.99 40.0 482 -101 380 709 44 1.33 0.54x 11.29x 23.21x 2.67xMean 0.98x 13.13x 23.21x 3.12x

Median 1.06x 12.93x 23.22x 3.06x

PATK Patrick Industries 41.37 45.9 441 47 489 595 48 2.24 0.78x 11.67x 17.92x 4.90x

VALUATION - COMPS

$43.21

Estimated Share Price

Multiple Multiple Value

Price (using subjective weights)

P/E – 25%23.2x $51.99

EV/Revenue – 25% 1.0x $50.67

EV/EBITDA – 25% 13.2x $45.31

P/B – 25%3.2x $24.88

Source: Patrick Industries, 10-K. 2013 Yahoo! Finance

VALUATION – Discount RateBeta Debt 55,000 11.0%

5 Year 0.98 Equity 444,024 89.0%2 Year 1.87 Total 499,024 100.0%1 Year 1.46Half Year 1.24One Month 2.18 Risk Free 2.73%Beta on Yahoo 1.1 Market Risk Premium 7.0%Adj. Beta 1.20 PATK Return to Owners 20.0% 10%

CAPM 11.1% 90%Cost of Equity 12.02%

5Year (annualized) 135.5%2 Year (annualized) 80.3% Cost of Debt 3.8%1 Year (annualized) 111.5% Tax Rate 38%Half Year 25.3% After tax Cost of Debt 2.3%Three Month 0.17099One Month -5.3% WACC 10.949%

Risk Premium 2.0%

Discount Rate 12.9%

Beta Regression Capital Structure

Discount Rate

PATK Return


VALUATION – ProjectionsVALUATION – Projections

Income Statement (% of Sales unless noted) 2009A 2010A 2011A 2012A 2013ANET SALES 31% 11% 42% 36%Cost of goods sold 89.23% 89.35% 85.61% 84.97% 84.70%GROSS PROFIT 10.77% 10.65% 14.39% 15.03% 15.30%Warehouse and delivery 4.82% 4.20% 4.43% 3.61% 3.39%Selling, general and administrative 5.71% 4.97% 5.39% 4.95% 4.70%Income tax expense (Tax Rate) 7.93% -7.07% -1.96% -32.08% 38.00%

Income Statement (% of Sales unless noted) 2014P 2015P 2016P 2017P 2018PNET SALES 20.00% 15.00% 10.00% 8.00% 5.00%Cost of goods sold 85.00% 84.00% 83.00% 82.00% 82.00%GROSS PROFIT 15.00% 16.00% 17.00% 18.00% 18.00%Warehouse and delivery 3.50% 3.68% 3.86% 4.05% 4.25%Selling, general and administrative 4.70% 4.68% 4.66% 4.64% 4.62%Income tax expense (Tax Rate) 38.00% 38.00% 38.00% 38.00% 38.00%

Forecast Figures

Historical figures


VALUATION - DCF

$39.81 10.95% 11.95% 12.95% 13.95% 14.95%1.00% 46.16$ 41.25$ 37.17$ 33.72$ 30.77$ 1.50% 48.13$ 42.81$ 38.43$ 34.75$ 31.63$ 2.00% 50.32$ 44.53$ 39.80$ 35.87$ 32.55$ 2.50% 52.77$ 46.43$ 41.31$ 37.09$ 33.55$ 3.00% 55.53$ 48.54$ 42.97$ 38.42$ 34.63$

Discounted Cash Flow Sensitivity Analysis

Gro

wth

rate

Discount Rate

2014 2015 2016 2017 2018 TerminalNet Income 27,284 35,678 43,928 52,444 53,907 Depreciation 7,297 7,479 7,666 7,858 8,055 CapEx (8,000) (8,200) (8,405) (8,615) (8,831) Change NWC 12,814 10,024 10,553 8,090 7,120 FCF 39,395$ 44,981$ 53,742$ 59,777$ 60,250$ 561,297$ PV FCF 34,879$ 35,259$ 37,297$ 36,729$ 32,776$ 305,341$

Discount rate 12.95%Terminal Value Growth Rate 2.0%

Implied Equity Value 482,280 Less: Debt 55,000 Implied Market Cap 427,280$

Share outstanding 10,733 Implied share price 39.81$

Weight Stock PriceDCF 50% 39.81$ Comparable Analysis 50% 43.21$ Weighted Value 41.51$

VALUATION - ResultCurrent Stock Price: $41.73

Our Valuation: $41.51

Weight Stock PriceDCF 50% 39.81$ Comparable Analysis 50% 43.21$ Weighted Value 41.51$

Valuation Summary


RECOMMENDATION

WATCH LISTFuture 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

patrick industries inc. (nasdaq: patk)

Documents

patk website source

usa source

homes source

gypsum source

miscellaneous products

housing construction

rv industry stable growth

recreational vehicles