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Morning Call about – Updates on – Arif Habib Limited

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by February 21, 2013 Brokerage

Karachi, February 21, 2013 (PPI-OT): 1) INDU, ENGRO, LOTPTA and WTL

INDU 1HFY13 preview

Indus Motor Company Limited (INDU) is scheduled to announce its 1HFY13 financial results on February 22, 2013.

According to Arif Habib Limited expects the company to post profit after tax of PKR 1,197mn (EPS: PKR 15.23), down by 32% YoY as compared to PKR 1,767mn (EPS: PKR 22.48) recorded in the same period last year. On quarterly basis the company is expected to post PAT of PKR 506mn, decline of 27% QoQ. This decline in profitability is mainly attributable towards 1) Lower volumetric sales by 19% QoQ to 11,769 units during the quarter, 2).

Increasing trend in the prices of Corolla and Hilux by 14% YoY and 17% YoY respectively which led the consumers to switch over alternative products (mainly imported cars) and 3) Other income expected to decline by massive 52% QoQ due to lower income on cash deposit. Along with the result the company is also expected to declare interim cash dividend of PKR 6.0/share. At level of PKR 304.5/share, the stock offers upside potential of 4.8%. Thus, Arif Habib Limited recommends Hold on the scrip.

Financial Highlights

PKR mn2QFY13E1QFY13AQoQ1HFY13E1HFY12AYoY
Net sales

10,698

13,475

-21%

24,172

33,000

-27%

Gross profit

955

1,156

-17%

2,111

2,475

-15%

Sales and admin expenses

276

348

-21%

624

504

24%

Operating profit

679

808

-16%

1,487

1,971

-25%

Other income

144

302

-52%

446

947

-53%

Finance cost

5

4

28%

9

44

-80%

Profit after tax

506

691

-27%

1,197

1,767

-32%

EPS (PKR)

6.44

8.79

15.23

22.48

Dividend (PKR)

6.00

6.00

5.00

Source: Company Accounts and Arif Habib Research

2) ENGRO analyst briefing update

Engro Corporation Limited (ENGRO) held its analyst briefing yesterday to discuss its CY12 result. The company posted PAT of PKR 4,338 mn (EPS: PKR 4.64) in CY12, massively down 60% YoY, when compared with the last year. Analyst briefing takeaways: Engro’s management showed their enthusiasm in operating their new plant Even, until the long term gas plan would be finalized and executed. In this regard, the management is expecting to get approval time to time (after every 3-4 months) from MARI gas fields.

As per management stance, GSA for long term gas plan is yet to be signed as negotiations on gas sale price are still in progress with the government.

As per the management estimates, ENGRO is expecting to incur capital expenditure of around USD 30-35mn on account of long-term gas plan, mainly for pipe-line and/or gas fields development.

According to management estimate, the long-term gas plan is expected to be completed by mid 2014.

According to the management, they have deferred the long-term loan instalment, which was due in the 2HCY12. Furthermore, the management is still in talks with their lenders for debt rescheduling. Risks associated with the long term plan Further delay in the long term plan due to:

1. Disagreement on gas sale price continues

2. Non consensus on bearing the capex on laying down gas pipe line

3. Inclusion of GIDC over and above the agreed gas price

4. Change of govt, interim setup may change stance on the plan

As discussed earlier, if ENGRO gets gas at higher rate (USD 4.26/mmbtu) it would be enough to pull EFERT’s bottom line out of the red zone (CY14 expected

EFERT’S EPS PKR 1.77, ENGRO EPS PKR 3.71). Furthermore ENGRO would be in limelight, if they manage to get gas at subsidized price (USD 0.7/mmbtu) plus tolling charges (CY14 expected EFERT’S EPS PKR 6.08, ENGRO EPS PKR 12.76). Currently, Arif Habib Limited has a ‘Buy’ recommendation on ENGRO with Jun-13 price target of PKR 128/share.

3) LOTPTA update

LOTPTA: Paraxylene handling price renegotiated

In its analyst briefing, Engro Corporation (ENGRO) disclosed that its subsidiary, Engro Vopak Terminal Limited, which provides import handling and storage facilities to Lotte Pakistan PTA Limited (LOTPTA) has renegotiated its contract with the latter at a much lower price. As per the channel checks, LOTPTA was paying around USD 30/ton to Vopak, which has been slashed to around USD 15/ton. Effective from Jan-13, this is estimated to reduce LOTPTA’s cost by around PKR 510mn per annum, with an after tax impact of PKR 0.22/share.

LOTPTA, has been suffering from trenching margins, which currently stand at historic low of USD 61/ton compared to CY12 average of USD 97/ton. This price negotiation with Vopak would bring some relief to the ailing bottom line of the company, which barely broke even in CY12 due to lower margins. Currently Arif Habib Limited has a hold stance on the scrip with a target price of PKR 8/share.

4) Worldcall quarterly review

WTL’s EBITDA QoQ shows improvement on account of LDI revenues Omantel, the parent company of Worldcall Telecom with a majority of 56.8% shareholding, recently published its accounts. In what seems to have been mostly derived from their increased LDI revenue (on account of ICH incoming int’l calling rates), the company’s EBITDA increased to Omani Riyal, RO 0.56mn (~PKR 136mn) in the 4QCY12 from LBITDA of RO 2.24mn (~PKR 544mn) in the 3QCY12. WTL has been clean slating its accounts of provisions and other losses; as a result profitability is yet to be reflected in their 4QCY12 accounts. Encouraging sign for the company is the second tranche of USD 35mn Capex funding from Omantel, which is expected to take place in 1QCY13.

Financial Highlights (PKR mn)~4QCY123QCY12QoQ~CY12CY11YoY
Revenue

1,247

1,200

4%

7,258

8,001

-9%

EBITDA/(LBITDA) ~approx

134

(534)

nm

(56)

2,121

nm

Operating Prof it/(Loss) ~approx

(192)

(907)

nm

(1,460)

581

nm

Finance Cost

873

178

nm

1,366

715

91%

Net Profit/(Loss) After Tax

(529)

(729)

nm

(1,684)

290

nm

EPS/(LPS)

(0.61)

(0.85)

28%

(1.96)

0.34

nm

Source: OmanTel, Worldcall Accounts and Arif Habib Research

~Estimates based on Oman Riyal (RO) to PKR conversion rate of PKR 243, 240.14 and

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