AKD Quotidian about — LOTPTA CY12 Result Review – Above Line!

Karachi, January 28, 2013 (PPI-OT): LOTPTA has announced its CY12 results today. On a consolidated basis, the company managed to breakeven, posting a slight profit of PKR 0.79 million compared with NPAT of PKR 4,178 (EPS: PKR 2.76) in CY11.

According to AKD Securities, in 4QCY12, LOIPTA recorded consolidated NPAT of PKR 248 million (EPS: PKR 0.16), trumping ours as well as consensus estimates. Better than expected PTA-Px primary margins as well as higher than estimated energy savings from Lotte Powergen (-quarterly saving of PKR 238 million in 4QCY12 compared to AKD Securities’ estimate of PKR 150 million) were the major factors leading to the earnings deviation. Lotte Powergen also distributed a dividend in 4QCY12 of approximately PKR 250 million, which was reflected in the Standalone accounts (Other Operating Income jumped to PKR 267 million compared with just PKR 7 million in 3QCY12). While international PTA-Px margins remain under pressure, recent rally in cotton prices (up 8%CYTD) may provide short term relief to margins. For CY13F, AKD Securities expects LOTPTA to post consolidated NPAT of PKR 784 million (EPS: PKR 0.52), where earnings rebound will largely be due to increased energy savings from the power plant. AKD Securities has increased AKD Securities’ Dec’13 end TP by 7% to PKR 7.8/share after incorporating the CY12 result and recommend `Accumulate’ on LOTPTA at current levels.

Banks: Spreads coming off swiftly now

Weighted average banking spreads for Dec’12 have clocked in at 6.54%, down 104bps YoY and 13bps MoM. This is the lowest level since Jun’05 when the DR stood at 9%. As a result, spreads have averaged 7.02% across full-year CY12 vs. an average of 7.63% across CY11. On a QoQ basis, 4QCY12 spreads have averaged 6.66% in 4QCY12 vs. 6.97% in 3QCY12. Spreads have now trimmed by 1.34% vs. the Jul’11 high of 7.88%, post which the SBP has cut the DR by a cumulative 450bps. In this regard, in contrast to lower lending yields, deposit costs are now relatively sticky (due to the rate floor on savings a/c). AKD Securities see softer spreads in 1HCY13 as the full impact of lower interest rates prices into tending yields white funding costs remain sticky. As such, while AKD Securities continues to see a banking sector rally in the run-up to CY12 results’ announcement (end-year dividends should compensate for any earnings misses, in AKD Securities’ view), AKD Securities cautions that banks will likely find it difficult to post growth in CY13F particularly as expiring FSV benefits imply loan provisions will lag any reduction in NPL stocks. One avenue of respite may be any reduction in the savings a/c rate floor (6% at present) even though AKD Securities attach a low probability to this event. At current levels, AKD Securities likes UBL (TP: PKR 100/share) and BAFL (TP: PKR 20/share) while AKD Securities has a Reduce stance on MCB (TP: PKR 1.85/share).