AKD Quotidian about — NML: FY11 Result Preview

Karachi: NML will be announcing its full year FY11 result tomorrow, where AKD Securities expects the company’s NPAT to surge 35%YoY to PkR3.9bn (EPS: PkR11.18). For 4QFY11, AKD Securities expects NML’s NPAT to stand at PkR451mn (EPS: PkR1.28) which is a fall of 68%QoQ where AKD Securities attributes lower profitability to a 14%QoQ fall in cotton prices leading to lower profitability in the yarn segment, which in 3QFY11 had been the star performer for NML. A final cash dividend of PkR4.0/share is expected to accompany the result.

For FY11, NML’s top line is expected to surge by 49%YoY to PkR47bn, with higher cotton prices (+94%YoY) being the major revenue driver. Gross profit is forecasted to rise by 19%YoY to PkR7.1 bn, however gross margin is expected to fall by 4ppt to 15% as higher cotton prices are expected to hurt margins of value added segments. For 4QFY11, AKD Securities expects earnings to fall by 68%QoQ to PkR451 mn where AKD Securities anticipates weak margins (gross margins down 7pptQoQ to 11%) to hurt profitability following steep fall in cotton prices (down 14%QoQ), leading to possible inventory losses in yarn segment.

Recent torrential rains owing to a late monsoon are expected to take a toll on the local cotton crop where initial estimates suggest a crop loss of -1mn bales. Additionally, there has been a recent uptick in int’l cotton prices where they have rebounded over US$1/lb. Diversification in export base coupled with higher cotton prices could further boost core earnings in FY12F, while dividend from power subsidiaries will further add stability to earnings. AKD Securities currently recommends a Buy stance on NML with a target price of PkR69/share offering rich upside of 52% from current levels.

PTCL is scheduled to announce its full year FY11 result on Sep 7,`11. AKD Securities expects the company to post unconsolidated NPAT of PkR6.1bn in FY11 (EPS: PkR1.20), which would depict a significant fall of 34%YoY. For the 4QFY11 AKD Securities expects NPAT to stand at PkR1.1bn (EPS: PkR0.22) which would denote a 19% growth over 3QFY11. AKD Securities doesn’t expect any cash dividend to accompany the result announcement.

Net revenues for PTC are forecasted to fall by 4%YoY in FY11 owing to flagging turnover from the fixed line business; however rising broadband subscribers are expected to partially offset the decline in revenues. Operating profitability of PTC is expected to reduce by 55%YoY to PkR4.3bn as lower margins coupled with rigid cost structure would puncture profitability.

Consolidated profitability would paint a slightly better picture where AKD Securities forecasts FY11 NPAT to stand at PkR10.1bn (EPS: PkR1.99), although the profitability would still be down by 14%YoY. The 100% owned subsidiary PTML (Ufone) revenues are expected to rise by 17%YoY to PkR48.8bn, while stable PkR/US$ exchange rate in FY11 is expected to keep operating margins elevated compared to FY10. AKD Securities will be updating their investment stance on PTC on availability of detailed FY11 results.