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Karachi, November 06, 2012 (PPI-OT): FY13 to be another year of luring dividend
Nishat Chunian Power Limited’s (NCPL) profit after tax for 1QFY13 clocked in at PKR 589 million (EPS: PKR 1.60) against PKR 580 million (EPS: PKR 1.58) in 1QFY12.
According to Arif Habib Limited, the earnings experienced a meager growth of 2% YoY. This subdued growth was mainly due to lower load factor of 60% in 1QFY13 (79% in 1QFY12), which primarily dragged the gross profit by 10% YoY. However indexation adjusted due to PKR devaluation and efficiency gains provided some cushion to gross profit.
In addition a 9x YoY jump in other operating income further supported the bottom line. Arif Habib Limited’s discussion with the management suggests that a major fraction of this income constituted of unrealized gain from derivative financial instruments, contributing PKR 38 million to the bottom line. Conversely, Arif Habib Limited believes this gain to be one off and do not expect to continue in coming periods.
| Financial Highlights | |||||
| PKR million | 1QFY13 | 4QFY12 | QoQ | 1QFY12 | YoY |
| Sales |
5,262 |
5,487 |
-4% |
6,225 |
-15% |
| Cost of Sales |
3,987 |
4,317 |
-8% |
4,813 |
-17% |
| Gross Profit |
1,275 |
1,170 |
9% |
1,412 |
-10% |
| Administrative Expenses |
19 |
55 |
-65% |
18 |
8% |
| Other Operating Income |
53 |
9 |
6x |
6 |
9x |
| Profit from Operations |
1,310 |
1,124 |
17% |
1,399 |
-6% |
| Finance Cost |
718 |
730 |
-2% |
817 |
-12% |
| Profit before taxation |
591 |
394 |
50% |
582 |
2% |
| Profit after taxation |
589 |
391 |
50% |
580 |
2% |
| Earning per share (PKR) |
1.60 |
1.07 |
|
1.58 |
|
| Sources; Company financials and AHL Research | |||||
Trade debts piling up again
In the light of Supreme Court’s order, NCPL received PKR 4-5 billion from overdue receivables during 1QFY13. The company is expected to receive further PKR 2.5 billion in November 2012; On the other hand, as on average NCPL generates invoices of ~ PKR 2 billion /month to NTDC, slow recovery of these invoices have piled up trade debts again to a level of PKR 11 billion. Arif Habib Limited believes that in FY13, being an election year, the government will be compelled to prompt up payments, to facilitate smooth operations of power companies.
Earnings to grow by 21% in FY13
NCPL operated at a load factor of 40% in July-12. Nonetheless, better generation statistics in subsequent months pushed the average capacity factor to 60% in 1QFY13. With the October-12 number close to 84%, Arif Habib Limited foresees an average load factor of 75% in FY13, forming the basis of expected net profit after tax of PKR 2,457 million (EPS: PKR 6.69). On similar grounds, Arif Habib Limited anticipates the company to maintain its policy of healthy payouts, distributing PKR 4/share as cash dividend in FY13.
Recommendation
Based on dividend discount model, Arif Habib Limited’s Dec-12 target price for NCPL works out to the tune of PKR 22.1/share, offering a 25% upside potential from last closing. Arif Habib Limited expects NCPL to pay a cash dividend of PKR 4/share in FY13, culminating into a yield of 23%. Healthy payout and a strong upside potential make the scrip one of the attractive bets in IPP universe. Thus, Arif Habib Limited maintains Arif Habib Limited’s BUY stance for the stock.