AKD Daily October 25, 2013 PSO: 1QFY14 result preview PSO is scheduled to announce its 1QFY14 result on Oct 2813, where we expect the company to post NPAT of PkR2.3bn (EPS: PkR9.19), a sizable decline of 46%YoY. We expect the decline to be led mainly by a 3.2xYoY increase in operating costs, where a ~7% currency depreciation is expected to result in foreign exchange loss of PkR6.7bn. Other highlights of the result include 1) 18%YoY increase in revenue to PkR324bn led by a 5%YoY increase in volumetric sales (MS volumes increased by 19%YoY and FO volumes increased by 7%YoY), 2) a substantial 66%YoY decline in financial charges to PkR979mn owing to reduced payables and short-term borrowing post circular debt retirement in Jun13, and 3) inventory gains of PkR2.7bn. Going forward, while core operations should normalize, profitability and payout capacity largely depend on liquidity across the energy chain. In this regard, we expect benefits of the increase in power tariffs to flow to PSO while additional earnings from PIBs should also provide cushion to the bottomline. Moreover, a potential increase in OMC margins should prove to be a key upside going forward. At current levels, PSO trades at an FY14F P/E of 4.9x, a discount of 57% to the broader market P/E. We are currently in the process of revisiting our investment case for PSO and will update investors accordingly. FATIMA: 9MCY13 result preview FATIMA is scheduled to announce its 3QCY13 result on Oct 2813. We expect the company to post NPAT of PkR1,983mn (EPS: PkR0.94) in 3QCY13, an increase of 40%YoY. On a cumulative basis, we expect FATIMA to post NPAT of PkR3,364mn (EPS: PkR2.55), an increase of 33%YoY. Key highlights of the 3QCY13 result include 1) a sizable 63%YoY increase in revenue to PkR9.2bn led by a 1.5xYoY, 18%YoY and 56%YoY increase in urea, NP and CAN volumetric sales, respectively, along with higher prices, 2) gross margin contraction of 5pptYoY to 54% largely on the back of increased fuelstock gas price, and 3) 7%YoY reduction in finance cost to 1.3bn. Going forward, while we still await an imminent hike in gas tariffs which should spell benefits for FATIMA should peers pass through the additional cost, any headway on the companys planned investment in USA should prove to be a key trigger, in our view. With regards to the former, gas tariff rationalization with an equalization of feed and fuel gas translates into a per bag impact of PkR240/bag of urea, where a complete pass through results in an annualized EPS impact of ~12% for FATIMA. At current levels, FATIMA trades at a CY13F P/E of 6x, D/Y of 8% and provides a robust upside of 43% to our TP of PkR36/share. Buy!
Posted on: Fri, 25 Oct 2013 07:17:54 +0000
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