KAPCO: FY13 Result Preview, ( Aug 23, 2013)
KAPCO is scheduled to announce its FY13 result on Aug 28' 2013 in Karachi Stock Exchange. We expect the company to post NPAT of PKR7,712 mn (EPS: PKR 8.76) in FY13, a growth of 27%YoY vs NPAT of PKR7,071mn (EPS: PKR6.9) in FY12. We also expect the company to announce a cash payout of PKR4.5/share alongside the result, taking cumulative payout for the year to PKR7.5/share. During 4QFY13, KAPCO realized a substantial benefit of PKR41.35bn in lieu of circular debt payments from the GoP, where we expect improved liquidity for the company to result in higher generation going forward. In addition, lower borrowing requirements could pave the way for higher payouts, where we assume payout of 90% in FY14F. At current level, KAPCO trades in Karachi Stock Exchange at a FY14F P/E of 6.3x and attractive D/Y of 14.3%, while our TP of PKR63/share implies upside of 9%.
PSO: FY13 Result Preview, ( Aug 23, 2013)
PSO is scheduled to announce its FY13 result on Aug 28, 2013 in Karachi Stock Exchange. We expect the company to post NPAT of PKR12,142mn (EPS: PkR49.16) in FY13 vs NPAT of PKR9,056 (EPS: PKR 36.67) in FY12, a growth of 34%YoY. In 4QFY13, we expect PSO to post NPAT of PKR2,825 mn (EPS: PKR11.44) vs NPAT of PKR82.07mn (EPS: PKR0.33) in 4QFY12. We at Karachi Stock Exchange also expect the company to announce dividend of PkR7/share alongside the result, taking cumulative payout for FY13 to PKR9.5/share. Key highlights of the FY13 result include 1) revenue growth of 17%YoY led by 25%YoY growth in MS volumes, 2) a muted 9bpsYoY decline in overall market share, 3) inventory gains of PKR920mn vs inventory loss of ~PKR2.4bn in FY12, 4) currency losses of PKR3.4bn vs currency loss of PKR 8.7 bn in FY12, and 5) a 26%YoY reduction in finance cost from lower short term borrowing during the year. Going forward, while valuations appear unstretched (FY14F P/E: 5.52), we believe optimism regarding energy reforms may already have been priced in. We are in the process of re-visiting our investment case for PSO and will up-date investors accordingly.
Karachi Stock Exchange: CA back in the Green Zone, ( Aug 22, 2013)
The Current Account balance for Jul 2013 has registered a surplus of US$46mn vs. a deficit of US$427mn in the same period last year. This improvement was underpinned by i) 9%YoY increase in exports (goods) driving 15%YoY shrinkage in the trade deficit and ii) a robust growth of 16.5%YoY in Jul'13 remittances to US$1,404mn, being a record high which we attribute to seasonal factors (Ramadan & Eid). While the outlook for Current Account remains manageable, risks stem from 1) increase in oil prices (Arab light up 7.5%FYTD), 2) any slowdown in remittances and 3) a delay in IMF loan disbursements within the backdrop of falling fx reserves, (down 44% from peak to US$18.3bn) leaving an import cover of less than 2.7months . Consequently, the exchange rate remains under pressure with 4.7%FYTD PKR depreciation against the US$. In this regard, Pakistan has been fulfilling the IMF preconditions leading up to the requested loan of US$7.3bn which should lead to much needed macroeconomic discipline and comfort on the external front. In the immediate term, we flag that the IMF is seeking a 100bps increase in the Discount Rate (T-bill yields have inched up to more than the DR in the secondary market) whereby the MPS decision has been delayed till Aug 27, 2013. In this regard, while we are not completely convinced that the rate tightening cycle will begin from this month, we believe the rate cycle will reverse in 4QCY13 with interest rates to average in the early digits across CY14. Within the back drop, we flag Banks as key beneficiaries where our preferred plays include BAFL, UBL, NBP and ABL.
Textile exports up 6%MoM/11%YoY in Jul'13, ( Aug 22, 2013)
The textile sector reported robust growth in exports during Jul 2013 with exports clocking in at US$1,210mn (+6%MoM /+ 11% YoY). Cotton yarn exports rose by 8%MoM to US$202mn, led by an 11%MoM increase in volumes. The increase in volumes was due to an improvement in electricity supply as well as a substantial increase in demand from China. In this regard, Jul 2013 China yarn imports surged by 36%MoM to 198k tons, the highest Jul on record. Similarly, Cotton Cloth, Bed Wear and Ready Made Garments also posted encouraging MoM export growth. This can be attributed to improved electricity supply to the textile sector allowing it to better exploit the opportunities presented by the EU ATP status. We remain overweight on the Karachi Stock Exchange Textile Universe, where near term triggers include i) PKR depreciation, ii) run-up in cotton prices (COTLOOKA Index up 2.5% in 1QFY14TD) and iii) dividend income from IPPs, particularly NPL (bumper 4QFY13 dividend expected, +ve for NML). That said, impending increase in gas prices is the near term risk where a 20% increase in gas tariffs from our base case scenario can potentially reduce our earnings estimates for NCL and NML, by 16% and 15% respectively assuming no pass through of increase in cost. For now NCL and NML offer an upside of 29% and 34% to their TP of PKR81/share and PKR130/share respectively. Buy!