AKD Securities Limited – NML and NCL: 1HFY15 Result Previews

Karachi, February 23, 2015 (PPI-OT): Nishat Mills limited (NML) and Nishat Chunian Limited (NCL) are scheduled to announce their 2QFY15 results tomorrow. AKD Securities Limited expects NML to post net earnings of PkR1.28bn (EPS: PkR3.64) in 2QFY15 vs. NPAT of PkR2.28bn (EPS: PkR6.49) in 2QFY14, down by 44%YoY. Due to subdued top-line (down by 5.1%YoY) on low demand and costs pressures expected to be on the higher side, AKD Securities Limited anticipates GMs to come off by 520bps to 13.6% in 2QFY15.

However, support to the bottom-line is expected to come from “other income” (up by 1.7%YoY), as associate companies continue to maintain a strong dividend payout. Subsequently, 1HFY15 earnings for NML are expected to clock in at PkR1.68bn (EPS: PkR4.77), down by 56%YoY. AKD Securities Limited expects NCL to post a bottom-line of PkR0.40bn (EPS: PkR1.98) in 2QFY15 vs. NPAT of PkR1.04bn (EPS: PkR5.21) in 2QFY14, down by 62%YoY. Downturn in international demand is expected to keep top-line under pressure, where AKD Securities Limited anticipates a meagre sales growth of 1%YoY in 2QFY15.

This along with 2%YoY growth in costs is expected to shrink GMs by 130bps to 7.9% in 2QFY15. Weaker core operations are expected to be veiled by dividends from the subsidiary company on both YoY and QoQ basis. This will take NCL’s 1HFY15 earnings down by a massive 87%YoY to PkR0.16bn (EPS: PkR0.79). On the back of absence of positives in the textile policy, accompanied with lower international demand and weakness in cotton prices, the textile sector has underperformed the broader market by 1.4% CYTD. AKD Securities Limited continues AKD Securities Limited’s preference for NML (TP of PkR172.1/sh) over NCL supported by its larger proportion of value added goods in its sales mix and a well-diversified portfolio.

NML – Other income to aid ailing core operations: AKD Securities Limited expects NML to post net earnings of PkR1.28bn (EPS: PkR3.64) in 2QFY15 vs. NPAT of PkR2.28bn (EPS: PkR6.49) in 2QFY14, drastically down by 44%YoY. While top-line of the company is expected to remain subdued on account of tepid demand, higher inventory build-ups might keep costs pressures on the higher side (up by 1.1%YoY).

Consequently, AKD Securities Limited anticipates GMs to come off by 520bps to 13.6% in 2QFY15 vs. 18.8% in 2QF14. However, support to the bottom-line is expected to come from “other income” (up by 1.7%YoY), as associate companies continue to maintain a strong dividend payout. On a QoQ basis, earnings are expected to recover by 220%, primarily driven by the recognition of the dividends and a slight improvement on the core operational front.

Subsequently, 1HFY15 earnings are expected to clock in at PkR1.68bn (EPS: PkR4.77) vs. NPAT of PkR3.85bn (EPS: PkR10.96) in 1HFY14, down by 56%YoY. While 1HFY15 is expected to be disappointing, AKD Securities Limited believes 2HFY15 should be better particularly on account of purchasing inventory at lower rates.

NCL – Core operation might continue to falter! AKD Securities Limited expects NCL to post a NPAT of PkR0.40bn (EPS: PkR1.98) in 2QFY15 vs. NPAT of PkR1.04bn (EPS: PkR5.21) in 2QFY14, massively down by 62%YoY. Downturn in international demand primarily led by China is expected to continue exerting pressure on the spinner’s top-line, where AKD Securities Limited anticipates a meagre sales growth of 1%YoY in 2QFY15 to PkR5.48bn. This along with 2%YoY growth in costs is expected to shrink GMs by 130bps to 7.9% in 2QFY15 from 9.2% in 2QFY14.

While core operations are expected to remain weak, dividends from the subsidiary Nishat Chunian Power (NCPL) are expected to provide some respite to the bottom-line, both on YoY and QoQ basis. In this regard, non-core EPS of the company is anticipated to clock in at PkR2.96/share. This will take 1HFY15 earnings down by a massive 87%YoY to PkR0.16bn (EPS: PkR0.79) vs. earnings of PkR1.27bn (EPS: PkR6.33) in 1HFY14.

AKD Securities Limited – LUCK: 1HFY15 Result Review

Karachi, February 23, 2015 (PPI-OT): Lucky Cement Limited (LUCK) posted unconsolidated net earnings of PkR2.93bn (EPS: PkR9.07) in 2QFY15, registering a growth of 12%YoY against NPAT of PkR2.61bn (EPS: PkR8.09) in 2QFY14. The growth in bottom-line came on the back of 1) 7%YoY jump in revenues to PkR10.9bn (cement dispatches up 3.9%YoY) and 2) improvement in GMs by 210bps to 44.5% in 2QFY15 vs. 42.4% in 2QFY14. This took 1HFY15 earnings to PkR5.60bn (EPS: PkR17.32) vs. PkR5.16bn (EPS: PkR15.96) in 1HFY14, up by 9%YoY.

Other key takeaways from the notice issued to KSE include: 1) LUCK’s 5MW WHR plant at Karachi Plant is expected to come online by the end of Feb’15, 2) Vertical grinding mills are also expected to be operational by the end of this month and 3) LUCK’s joint venture Basra project posted net profit of US$6.4mn in 1HFY15.

Having gained 4.3%CYTD, LUCK trades at a forward unconsolidated P/E multiple of 13.6x. AKD Securities Limited an Accumulates stance on the scrip, where favourable cement sector dynamics and the company’s cost competency is to help net earnings growth. AKD Securities Limited’s TP of PkR583.3/share offers 12% upside.


LUCK: Profit and Loss Account

PKR mn 1HFY15 1HFY14 YoY 2QFY15 2QFY14 YoY 1QFY15 QoQ
Sales (net) 21,410 19,575 9% 10,940 10,243 7% 10,470 4%
Cost of sales 12,133 11,067 10% 6,074 5,899 3% 6,058 0%
Gross profit 9,277 8,509 9% 4,865 4,344 12% 4,412 10%
Admin expenses 429 443 -3% 221 251 -12% 208 6%
Distribution expenses 1,747 1,546 13% 879 851 3% 868 1%
Operating profit 7,100 6,519 9% 3,765 3,243 16% 3,335 13%
Other expenses 646 428 51% 334 171 95% 313 7%
Other income 616 416 48% 284 195 46% 332 -15%
Financing costs 13 21 -38% 4 9 -58% 9 -60%
Profit before tax 7,057 6,486 9% 3,712 3,257 14% 3,345 11%
Tax 1,456 1,325 10% 780 642 21% 676 15%
Profit after tax 5,601 5,161 9% 2,932 2,615 12% 2,669 10%
EPS 17.32 15.96 9% 9.07 8.09 12% 8.25 10%
DPS – – – –
Gross margin 43.3% 43.5% 44.5% 42.4% 42.1%
Net margins 26.2% 26.4% 26.8% 25.5% 25.5%
Source: Company Accounts and AKD Research

JS Securities Limited – INDU: 1HFY15 EPS at Rs39.99, up 132% YoY

Karachi, February 20, 2015 (PPI-OT): Indus Motor Company Limited (INDU) announced 1HFY15 results today, where the company posted earnings of Rs3,143mn (EPS: Rs39.99), up 132% YoY. The result was in-line with JS Securities Limited’s expectation of Rs2,958mn (EPS: Rs37.63). The company also announced an interim cash dividend of Rs20/share.

In 2Q alone, earnings clocked in at Rs25.65/share, a growth of 327% YoY and 79% QoQ, led by (1) revenue growth of 86% YoY, (2) gross margins improvement to 13.5% on the back of favourable PKR exchange rate and (3) jump in other income by 210% YoY owing to higher cash balances.

AKD Securities Limited – Cement Sector: Concerns overblown

Karachi, February 20, 2015 (PPI-OT): As per a Bloomberg ticker, DGKC has once again affirmed its stance on expanding its current plant capacity (~4.2mn tons) to ~6.7mn tons by way of a greenfield expansion where the company will be installing a new plant near Hub, Baluchistan. The lead time from the financial close of the project to the commencement of operations is expected to be ~30-36 months where the company will likely rollout its first production in 1HCY18. In addition, as per management guidance, DGKC expects to earn NPAT of ~PkR7.5bn (EPS: PkR17.12) in full-year FY15F, up 26%YoY.

The Cement Sector has opened sharply in the red today, with investors ostensibly fearing an outbreak of a price war. That said, as per DGKC management the Bloomberg announcement is not a new development but a repetition of the company’s earlier announcements (KSE notice in Sep’13 and a mention in the last two results). AKD Securities Limited concurs, where considering the proposed new plant will take up to 3yrs to come online, fears of an immediate price war appear overblown. In this regard, with local cement dispatches up ~10%YoY in 7MFY15, AKD Securities Limited believes cement players are likely to concentrate on further strengthening their margins rather than under-cutting each other.

AKD Securities Limited takes immediate-term pressure on Cement sector scrips as an opportunity to build fresh positions. At current levels, AKD Securities Limited’s preferred plays are LUCK (TP: PkR583/share; upside: 11%), MLCF (TP: PkR68/share; upside: 21%) and DGKC (TP: PkR153.5/share; upside: 19%).

AKD Securities Limited – INDU: 1HFY15 Result Review

Karachi, February 20, 2015 (PPI-OT): Indus Motor Company (INDU) announced its financial result for 1HFY15 where the company posted NPAT of PkR3.1bn (EPS: PKR39.99) vs. NPAT of PkR1.4bn (EPS: PkR17.20) in 1HFY14, translating into a robust growth of 132%YoY.

Alongside the result, the company announced an interim cash dividend of PkR20/share. The result was above AKD Securities Limited’s expected 1HFY15 NPAT of PkR2,6bn (EPS: PkR32.94) and DPS of PkR15/share; where the deviation in profits is due to higher than expected gross margins.

Key highlights of the result include: 1) Increase in 1HFY15 GMs to 11.88%; up 2.86ppts YoY (in 2QFY15 alone, gross margins were recorded 3.75ppts QoQ higher at 13.54%), 2) 50%YoY increase in topline to PkR39bn, and 3) a jump in other income by 192%YoY.

With the highest ever monthly sales volume of 6,415 units in Jan’15, AKD Securities Limited believes the volumetric uptick is encouraging with 2HFY15 sales expected to be better than 1HFY15.

On the margin front, positive surprises can come from further JPY weakness along with higher than anticipated dip in input costs. Currently, AKD Securities Limited an Accumulates stance on the scrip with a TP of PkR1,102/share offering 10% upside at current levels, however, AKD Securities Limited looks to revisit AKD Securities Limited’s investment case upon release of detailed accounts.


Profit and Loss Accounts
(In PkRmn) 1HFY15A 1HFY14A YoY 2QFY15A 1QFY15A QoQ
Net Sales 39,098 26,048 50% 21,820 17,277 26%
COGS 34,451 23,698 45% 18,866 15,586 21%
Gross Profit 4,646 2,350 98% 2,955 1,692 75%
Operating Exp 1,010 679 49% 420 590 -29%
Operating Profit 3,636 1,671 118% 2,535 1,102 130%
Other Income 1,326 455 192% 690 636 9%
Other Charges 360 161 124% 232 128 82%
Financial Charges 21.62 9.64 124% 9 12.40 -26%
NPBT 4,580 1,955 134% 2,983 1,597 87%
Taxation 1,437 603 138% 967 470 106%
NPAT 3,143 1,352 132% 2,016 1,127 79%
EPS (PkR) 39.99 17.20 132% 25.65 14.34 79%
Source: Company Announcement

AKD Securities Limited – ENGRO: Analyst Briefing Notes

Karachi, February 20, 2015 (PPI-OT): Engro Corporation Limited (ENGRO) held its analyst briefing yesterday to discuss the company’s CY14 results. Recall that ENGRO announced NPAT of PkR7.80bn (EPS: PkR13.59) in CY14, lower by 6%YoY.

In 4QCY14 alone, the company recorded NPAT of PkR2.64bn (fully diluted EPS: PkR5.07), up 32%QoQ. In addition to this, CY14 result was accompanied by a final cash dividend of PkR4/sh, taking the full year dividend to PkR6/sh. In addition, ENGRO announced a spate of strategic actions including (i) transferring Engro Eximp to EFERT and buying back Engro Eximp Agriproducts from the latter and (ii) approval for further investment into EPCL.

ENGRO has gained 5% since result announcement to trade at a trailing P/E of 21x. In this regard, AKD Securities Limited believes the market is looking towards ENGRO’s upcoming developments including ongoing de-leveraging and work on its LNG terminal which is scheduled to achieve commissioning by Mar’15. While AKD Securities Limited intends to formally revisit AKD Securities Limited’s investment case for ENGRO shortly, AKD Securities Limited believes a more focused approach will stand the company in good stead going forward.

Analyst briefing notes: Much of the discussion in yesterday’s briefing centered on several strategic steps announced by the company alongside CY14 results. Details/impacts are as follows:

ENGRO will sell its entire shareholding in its wholly owned subsidiary Engro Eximp including the latter’s 100% held UAE based subsidiary Engro Eximp FZE to associated entity Engro Fertilizers (EFERT) for a consideration of PkR4.4bn. As per management, this will increase EFERT’s topline by about PkR20-PkR22bn and have a bottom-line impact of PkR500-PkR700mn (EPS impact: PkR0.37-PkR0.53).

In connection with the above, ENGRO will then purchase the entire issued share capital of Engro Eximp Agriproducts (EEAP), a wholly owned subsidiary of Engro Eximp, from the latter for a consideration of PkR4.4bn to make it a direct subsidiary. EEAP is engaged in the procurement, processing and sale of basmati rice and owns the largest integrated rice processing plant in the country.

Engro Polymer and Chemicals (EPCL), subject to regulatory and shareholder approval, has approved issuance of preference shares (by way of rights issue) of PkR4bn at a rate of 14%pa to its existing shareholders including ENGRO. In this regard, ENGRO will subscribe PkR2.24bn worth of these preference shares or, alternatively, lend PkR4bn as a long term subordinated loan to EPCL.
Management comments on individual subsidiaries are as follows:

EFERT: EFERT announced NPAT of PkR8.20bn (EPS: PkR6.29) in CY14, higher by 35%YoY. In addition to this, CY14 result was accompanied by a surprise first-ever DPS of PkR3. Key takeaways from the analyst briefing included reduction in volumetric urea sales by 4.5%YoY in CY14.

This was primarily due to lower sales in 2QCY14 (price enforcement issues leading to dealer uncertainty on margins) and 4QCY14 (poor local cotton/rice economics and late sowing of wheat). However, expected tight supply situation for the industry in 4QCY14 was ameliorated by continued diversion of Guddu gas to EFERT and timely arrival of imports.

EFOODS: Posted unconsolidated NPAT of PkR635mn (EPS: PkR0.83) in 4QCY14 vs. a loss of PkR77mn (LPS: PkR0.10) in 3QCY14. As a result, CY14 earnings stood at PkR888mn (EPS: PkR1.16), up 314%YoY (pre-tax basis: -2.5%YoY). With volumes showing an encouraging uptick and input costs on the downtrend, EFOODS appears on track to post a robust earnings rebound in CY15F, particularly as distribution efficiencies arise.

Eximp: Key takeaways included: (i) Margins are significantly depressed due to (a) sharp decline in int’l rice prices following a general fall in the global commodity prices and (b) sharp PkR appreciation vs. the US$ during 1QCY14, (ii) As at end-CY14, Eximp had ~15KT of finished equivalent rice and (iii) During the year, inventory was written down by PkR1.4bn to bring it down to NRV. Going forward, management intends to restructure the business model, with focusing on creating brand equity and reducing exposure to commodity price volatility.

EPCL: Posted Loss of PkR1.1bn (LPS: PkR 1.67) in CY14 vs. NPAT of PkR707mn (EPS: PkR1.07) in CY13. This setback was due: (i) Contraction of the PVC market due to imposition of duty on PVC pipes by Afghanistan and inventory depletion by end-users coupled with unfavorable swing in the US$/PKR exchange rate, (ii) Unfavorable vinyl chain prices especially in 4QCY14 forced EPCL to write down year-end inventory by PkR724mn to bring it down to its NRV, (iii) Higher gas price due to imposition of GIDC on gas price along with imposition of 5% duty on primary raw materials further depressed margins and (iv) Write-off of deferred tax assets of PkR387m (Minimum Turnover Tax expiring till FY18) on account of their improbable recoup ability.

Regarding EPCL’s proposed preference shares issuance, AKD Securities Limited believes this will allow the company to meet near-term debt obligations. Going forward, AKD Securities Limited expects the PVC market to remain stable while ethylene is set to track falling oil prices which should benefit the company in the medium-term.

Outlook: ENGRO has gained 5% since result announcement to trade at a trailing P/E of 21x. In this regard, AKD Securities Limited believes the market is looking towards ENGRO’s upcoming developments including ongoing de-leveraging (D/E at 52% in CY14 vs. 63% in CY13) and work on its LNG terminal which is scheduled to achieve commissioning by Mar’15.

Regarding the latter, news reports suggest the GoP has finalized an LNG import deal with Qatar at US$7/mmbtu with ENGRO set to collect tolling charges at US$0.66/mmbtu. While execution concerns remain on the company’s decision to retain the rice business (notwithstanding planned restructuring) and on plans to continue with small pilot projects (ala EFOODS’ Mabrook), ENGRO appears to be emerging as a more focused entity which, in AKD Securities Limited’s view, stands it in good stead going forward.

AKD Securities Limited – ENGRO: CY14 Result Review

Karachi, February 18, 2015 (PPI-OT): Engro Corporation Limited (ENGRO) announced NPAT of PkR7.80bn (EPS: PkR13.59) in CY14, lower by 6%YoY vs. NPAT of PkR8.32bn (EPS: PkR15.29) posted in the previous year. In 4QCY14, the company recorded NPAT of PkR2.64bn (fully diluted EPS: PkR5.07), up 32%QoQ against NPAT of PkR1.99bn (fully diluted EPS: PkR3.27) the company posted in 3QCY14. In addition to this, CY14 result was accompanied by a final cash dividend of PkR4/sh.

Key highlights of the result include: 1) topline growth at 13%YoY in CY14 owing to 23%YoY increase in EFERT’s topline alongside EFOODS’ 14%YoY topline growth, 2) 36%YoY increase in ‘other income’ on back of interest earned on the GIDC that is yet to be paid out to the GoP (approx. PkR12-14bn), 3) 21%YoY decrease in finance cost to PkR12.34bn in CY14 on account of early payments and monetary easing environment, and 4) 6pts YoY decline in effective tax rate to 29%. ENGRO closed up 1.2% today, buoyed by a +ve surprise on payouts. AKD Securities Limited looks to revisit AKD Securities Limited investment case for ENGRO post the company’s analyst briefing tomorrow.