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AKD Quotidian about — AGTL: 1HCY11 Result Preview

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by August 18, 2011 Brokerage

Karachi: The Board of Directors of Al-Ghazi Tractors (AGTL) is scheduled to consider the company’s 1HCY11 financial results today.

According to AKD Securities expects AGTL to report NPAT of PkR1 ,14Omn (EPS: PkR26.54) in 1HCY11 against NPAT of PkR998mn (EPS: PkR23.24) in 1HCY10, translating into a growth of 14%Y0Y. Growth is expected to stem from higher prices (up 6%Y0Y) and higher `other income’ on the back of increase in cash balance (receipt on sales tax dues from the government) coupled with higher interest rates (average 6M KIBOR up l4ObpsYoY to 13.73% in 1HCY11).

Despite higher tractor prices however, 1HCY11 Gross Margin is expected to remain flat at 19.4%. On a sequential basis, earnings are expected to decline by 17%QoQ to stand at PkR5lBmn (EPS: PkR12.07) in 2QCY11. Decline is expected to come mainly from a 26%QoQ contraction in the top line due to sequentially lower volumes (down 26%QoQ), as tractor demand deteriorated post GST Levy and erosion in farmer economics (higher fertilizer prices, lower cotton prices). To add to tractor manufacturers’ woes, news reports indicate a potential government decision to allow duty free import of reconditioned tractors.

While AKD Securities has a Buy stance on AGTL (CY11F PER: 3.86x) based on AKD Securities targets price of PkR313.5/share (upside: 59%), AKD Securities cautions investors to remain sidelined in tractor scrips in the near-term, particularly as 2HCY11 has commenced inauspiciously (89%Y0Y decline in Jul’11 volumes).

PSMC: 1HCY11 Result Preview

Pak Suzuki Motor Company Limited (PSMC) is scheduled to announce its IHCYII financial results today. AKD Securities expects the company to report NPAT of PkR241.3mn (EPS: PkR2.93) in the review period against NPAT of PkR280.8mn (EPS: PkR3.41) in the corresponding period last year, translating into a decline of 14%YoY. The decline is expected to come from higher steel costs (up 14%YoY) coupled with PkR depreciation against JPY (down 13%YoY), despite higher volumes in the review period whereby the company sold 41,717 cars (up 8%YoY) and 10,557 motorcycles (up 16%YoY) in 1HCY11.

Operating in a high cost environment, the company is expected to post a decline of 5ObpsYoY in the gross margin to 2.73%. Consequently, the operating margin should also decline to 1.05% in 1HCY11 from 1.2% in 1HCY10. Sequentially, PSMC is expected to report NPAT of PkR127.6mn (EPS: PkR1.55) in 2QCY11 against NPAT of PkRII3.7mn (EPS: PkR1.38) in the previous quarter as lower revenue leads to lower effective tax as compared to previous quarter.

Going forward, although the Pakistan auto industry continues to face headwinds particularly if the GoP allows more concessions for import of reconditioned cars, PSMC may show improved volume uptick on the back of its agreement to provide the Mehran and Bolan variants for Government of Punjab’s yellow cab scheme. At current price level, AKD Securities has a Buy stance on PSMC, which offers an upside of 23% to AKD Securities targets price of PkR80/share.

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