Day: October 1, 2012

Karachi, October 01, 2012 (PPI-OT): Lafarge Pakistan Cement to show better earnings in CY12

Lafarge Pakistan Cement healed from vulnerable condition of loss where it achieved to gain PAT of Rs.498 million (EPS Re 0.38/sh) in 1HCY12 as against Rs. -17 million (EPS: 0.013/sh) in the corresponding period last year.

According to Standard Capital, LPCL, a French brand, with presence world over is regaining its hold on adjoining Northern Zone as well as cross border opportunities. However, it receives resistance from adjoining Gurgory based plant of DG Khan Cement in similar vicinity.

Lafarge parent company to charge licensing, intellectual property rights fee

Recently, the foreign parents have decided to charge licensing and intellectual property rights charge along with technical expertise fee which they had been providing since acquisition of stakes couple of years back. Standard Capital has calculated the total impact of this fee which would not be more than Re0.05/sh on KASB Securities Limited’s CY12 EPS target of Re 0.80/sh and hence Standard Capital sees good LPCL operations in running.

Thrust on local dispatches during 1HCY12

During 1HCY12, the company managed to sell 6 million tons of cement in the local market as compared to 5.8 million tons. Exports on the other hand declined to 2.3 million tons from 2.6 million tons for the same period last year which is evidenced in overall growth of 30% in terms of revenue. As for industry, the industry dispatches improved by 3.1% which stood at 17.2 million tons whereas local dispatches rose 9.7% to 13 million tons; however, exports registered 13.6% negative growth by sliding from 4.8 million tons to 4.1 million tons.

Operations glowed in 1HCY12

LPCL operations glowed with increased top line numbers, eventhough, manufacturing cost grown by 14% which is not in line with revenue which indicates that company continued its focus on cost optimization with 24% alternative fuel usage that saved Rs. 201 million during 1HCY12. To further probe this out, Standard Capital takes a look at sales markup (% of profit charged on cost) where it grew from 126% in 1CHY11 to 145% in 1CHY12 indicating increase in margins where GP margin also grown from 21% to 30%. Delving further into financials, Standard Capital founds that deferred tax assets rose by 6.6% which is reflected in P and L where deferred tax asset is realized in the form of income. Moreover liquidity position of the company is telling the pay off story where it shows improving where current ratio of 0.89x was seen(calculated as per 1CHY12 results) as against 0.70x as per 1HCY11 whereas quick ratio is also hiked up from 0.41x to 0.53x.

LPCL (Rs.000’)	1HCY12	1HCY11	Chg.
Sales	4,784,812	3,684,991	30%
COGS	3,297,008	2,904,699	14%
Gross Profit	1,487,804	780,292	91%
Dist. Cost	115,625	103,333	12%
Admin Exp.	272,600	221,614	26%
	1,093,579	455,345	140%
Finance Cost	604,662	481,565	26%
Other Opr. Inc	4,522	24,118	-81%
	493,437	-2,102	-23575%
Other Exp.	–	3,559	-100%
PBT	493 237	-5,661	-8816%
Tax	5,479	11,878	-54%
PAT	498,916	-17,539	31%
EPS	0.38	-0.013	-3023%

Valuation

LPCL comes into limelight as well with CY12PE of 7.2x which is quite therefore Standard Capital takes BUY stance.

Karachi, October 01, 2012 (PPI-OT): The KSE-100 Index ended 1QFY13 on 15,445 points, up a strong 12%QoQ, bringing CYTD gains to 36% which makes Pakistan one of the best performing markets in the world.

According to AKD Securities, although Banks and Chemicals remained under pressure, the Index was propelled by strong gains across Telecoms, Cements, Textiles, Food Producers and heavyweight E and P. In addition to strong results (4QFY12 AKD Universe profits up 33%YoY/2%QoQ), bullish sentiment emanated from monetary easing amidst single-digit CPI and improved US-Pakistan relations. Net FIPI for the quarter came in at USS$93 million, bumping CYTD net inflow to US$64 million. Average daily volumes in 1QFY13 clocked in at 140 million shares (All Share), down 34%QoQ partly due to Ramadan. Although risks remain – political noise may escalate in the run-up to general elections while latent BoP concerns linger – the Pakistan Market retains attractive valuations (FY13F P/E: 6.6x, at a 42% discount to the region). AKD Securities’ end-Jun’13 Index target is 17,000 points where top picks include PTC, NCL, FATIMA, KAPCO and UBL.

String of Positives: In addition to positive sector-specific developments (particularly for Telecoms), strong Index gains in the previous quarter were helped by monetary easing (DR cut by 150bps to 10.5% in the last MPS) and improved US-Pakistan relations, underpinned by release of CSF dues. Corporate results (+33%YoY/2%QoQ) continued to surprise, beating consensus estimates by 3% on average. Political noise remained relatively subdued despite former PM Gilani’s disqualification in late Jun’12.

Sector and Stocks: Within mainboard sectors, top gainers in the last quarter were Fixed Line Telecom (+39%QoQ on ICH implementation), Cements (+28%QoQ on strong 4QFY12 results amidst strong margins) and Textiles (+19%QoQ on lower EPS rates/reduced GIDC/ improved prospects for exports). Underperforming sectors included Banks (+1%QoQ on margin compression concerns) and Chemicals (-0.3%QoQ on poor product offtake). Index heavyweight Oil and Gas returned 13%QoQ in 1QFY13 amidst release of the new Petroleum Policy but has still underperformed the index by 15%CYTD. Top three stocks in the outgoing quarter were PTC (+42%QoQ), ULEVER (+37%QoQ), DGKC (+28%QoQ) and NCL (+28%QoQ) while FFBL (-12%QoQ), BAFL (-9%QoQ) and UBL (-6%QoQ) were key laggards.

Volumes and Liquidity: Average daily volumes in 1QFY13 clocked in at 140 million shares (All Share), down 34%QoQ partly due to shorter working hours in Ramadan. Net FIPI for the quarter came in at USS$93 million, increasing CYTD net inflow to US$64.4 million as the PKR shed a contained 0.31% vs. the US$. In 1QFY13, Banks were net sellers to the tune of US$27 million, likely opting for capital gains realization to counter tighter NIMs. Net selling for Individuals came in at US$33 million.

Outlook: Near-term checkpoint include 1) next MPS and SC deadline for finalizing Swiss letter; Oct 5’12 for both, 2) outcome of ongoing IMF-Pakistan talks, 3) conversion to free-float weighted Index methodolody and 4) start and BoP front), AKD Securities retains an end-Jun’13 Index target of 17,000 points underpinned by attractive valuations (FY13F P/E: 6.6x). Top picks include PTC, NCL, FATIMA, KAPCO and UBL.

Karachi, October 01, 2012 (PPI-OT): Declining volumes and other income to drag profitability in FY13

Arif Habib Limited downgrades Arif Habib Limited’s stance to hold on Indus Motor Company Limited (INDU) with a target price of PKR 279/share, offering a modest upside potential of 9.5% from last closing price of PKR 255/share.

According to Arif Habib Limited’s downgrading stance mainly emanates from threatening imports, which have forced the company to cut down its production. In addition to this, other income (contributing 28% to net earnings) is expected to go down in FY13 due to lower advances from customers and declining interest rates.

Sales volume to remain depressed in FY13
Discontinuation of low end Coure and continued pressure from the imported cars is expected to drag the volumetric growth by a 15% YoY in FY13 to 47k units from 55k units in FY12. Rising inventory levels compelled the company to shut its plant down for another 7 days in September 2012 taking total non production days to 17 in 1QFY13. Even management of the company felt the heat from the imports and highlighted their concerns in the last analyst briefing, citing that the imports were hurting their sales and urged the government to intervene. 2MFY13 sales figures pretty much tell the same story, where INDU lost its volumetric sales by 23.5% YoY to 6,110 units.

Lower advances from customers are likely to dent other income
Other income which skyrocketed in FY12 to PKR 1.77 billion (contributing 28% to PAT), is projected to plunge by 39% to PKR 1.1 billion in FY13E on the back of lower advances from customers and declining rates on deposits. Previously company was booking cars on 100% full advance payment, but now the management has revised the booking policy to 25% payment at the time of booking and remaining 75% at the time of car delivery. However due to high inventory, currently any variant of Corolla can be delivered in 7 days upon full payment.

Falling interest rate will further dampen the other income
In addition to lower advances from customers, other income is further likely to be diluted by declining interest rates. INDU has T Bills worth of PKR 2.7 billion (FY11: PKR 2.1 billion) by the end of FY12, which are expected to yield less in FY13 due to a 150 basis points cut in discount rate. Moreover, the company booked a hefty gain of PKR 335 million in FY12 on the redemption of Mutual Fund units, which Arif Habib Limited fear is not recurring as company’s investment in Mutual Funds has dropped to PKR 2 million from PKR 2,903 million in FY11.

Regulatory change may bring some respite
Some respite might come if the government decides to give some relaxation in upcoming Auto Industry Development Policy. Auto Assemblers are demanding to increase import duty and decrease age limit of imported cars to 3 years from 4 years. If approved, this could be a price trigger for the stock.