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Karachi: In 1QFY12, Kot Addu Power Company (KAPCO) posted a profit after tax of PKR 1,198mn (EPS: PKR 1.36) as compared to PKR 2,037mn (EPS: PKR 2.31) in 1QFY11, depicting a decline of 41% YoY.
According to Arif Habib Limited, this decline in earnings was mainly due to the 53% (YoY) jump in Fuel cost and 196% (YoY) higher plant maintenance & overhaul cost. The plant was forced to operate on Fuel oil as its gas turbines were shut down for the scheduled repair and maintenance. Three gas turbines went through major over hauling, while steam turbine went through minor inspection during the period. On the other hand other income supported the bottom line as it jumped by 16% (YoY) from PKR 1.94bn in 1QFY11 to PKR 2.24bn in 1QFY12. This jump in other income is due to higher penal interest earned on receivables.
| Financial Highlights (PKR mn) | 1QFY12 | 1QFY11 | YoY |
| Net Sales | 22,096 | 16,201 | 36% |
| Operating costs | 19,633 | 12,894 | 52% |
| Gross Profit | 2,463 | 3,307 | -26% |
| General and Admin Expenses | 90 | 140 | -36% |
| EBIT | 2,373 | 3,167 | -25% |
| Financing Cost | 2,788 | 2,015 | 38% |
| Other Income | 2,239 | 1,939 | 16% |
| EBT | 1,824 | 3,091 | -41% |
| Taxation | 627 | 1,054 | -41% |
| Net Profit | 1,198 | 2,037 | -41% |
| EPS | 1.36 | 2.31 | -41% |
| Source: AHL Research | |||
During 1QFY12, the plant operated at an average load factor of 45.1% as compared to 54% load factor in 1QFY11, whereas its availability remained at 96%. With fuel mix of 98.6% Low Sulphur Furnace Oil (LSFO) and 1.4% High Speed Diesel (HSD), the plant produced 1,340 Gwh of electricity during the period under review.
Rising Circular Debt
The growing gap between receivables and payables of the company has proved to be positive for the company as penal interest charged to WAPDA is higher than penal interest paid to PSO. By the end of 1QFY12 KAPCO’s receivables from WAPDA stood at PKR 75bn whereas payables to PSO stood were at PKR 34bn.
Outlook
With major overhauling of plant finishing in 2QFY12 and better gas availability in 2QFY12, Arif Habib Limited believes the maintenance cost will remain at lower side in 2QFY12. Arif Habib expects the company to earn a profit of PKR 1,479mn (EPS: PKR1.68) in 2QFY12 and will pay a dividend of PKR 2.5/ share.
Recommendation
Arif Habib’s Dividend Discount Model (DDM) based target price for Jun 2012 works out to be PKR 51.9 per share, which offers an upside potential of 25% from its last closing price of PKR 41.5/share. Beside attractive upside potential, the stock offers FY12F dividend yield of 17.1%, making it one of the best defensive play in the market. Thus Arif Habib recommends BUY.