DAWH: Share of profit triggered 1Q bottom-line despite an impairment loss!

46% YoY surge in PAT: Dawood Hercules & Chemicals Limited (DAWH) posted PAT of PKR519mn (EPS: PKR1.08) in 1QCY11, up 46% YoY from PKR356mn (EPS: PKR0.74) in 1QCY10. Earnings growth primarily emanated from higher gross margins and significant jump in profit from associate.

800bps jump in gross margins; 123% YoY increase in share of profit from associate: Despite 22% plunge in top-line due to 42% decline in volumetric sales, gross profit rose by 5% YoY to PKR335mn mainly attributable to 800bps jump in gross margins to 31%. Moreover, bottom-line growth was further helped by 123% YoY increase in profit from associate to PKR909mn.

Impairment loss partially offset strong income from associates: DAWH booked an impairment loss of PKR349mn on its ‘available for sale’ investments in SNGP and SEPCO during the quarter, which partly offset the gains from higher gross margins and profit from associate.

Investment Perspective: At yesterday’s closing price of PKR63.5/share, the scrip is trading at a marginal 1% premium to its portfolio value (PKR63/share).

dawh-share-of-profit-triggered-1q-bottom-line-despite-an-impairment-loss

800bps jump in gross margins; 123% YoY increase in share of profit from associate
Despite a strong increase in Urea prices (37% YoY) to an average of PKR1,113 during 1QCY11, top-line for DAWH plunged by 22% YoY mainly on the back of 42% YoY decline in Urea dispatches to 51.9k tons due to gas curtailment and resulting plant shutdowns. However, gross profit still increased by 5% YoY to PKR335mn during 1QCY11 as against PKR321mn last year, primarily stemming from 800bps jump in gross margins to 31%. Moreover, share of profit from associate increased by more than two folds to PKR909mn on its 38% (150mn shares) holding of Engro Corporation Limited, a major contributor to 1QCY11 bottom line.

dawh-share-of-profit-triggered-1q-bottom-line-despite-an-impairment-loss 1

Impairment loss partially offset strong income from associates

Poor financial performance of SNGP and SEPCO, which are present in DAWH’s investment portfolio, and the resulting dismal share price performance of the two scrips led DAWH to book an impairment loss of PKR349mn during 1QCY11, which partly eroded the gains stemming from strong gross margins and associate’s profits.

Investment Perspective

At yesterday’s closing price of PKR63.5/share, the scrip is trading at a marginal 1% premium to its portfolio value (PKR63/share) at current market prices.

dawh-share-of-profit-triggered-1q-bottom-line-despite-an-impairment-loss 2

Economic & Political News

Numbers on CNICs to be treated as NTNs

Federal Board of Revenue Chairman Salman Siddiq said on Wednesday that the Computerised National Identity Card Numbers (CNICs) would become National Tax Numbers (NTNs) of the existing and new taxpayers from December 31, 2011. From December 2011, the FBR has decided that the NTN number would be the same which has been mentioned on the CNICs. Thus, the CNICs would become the NTNs – identification number of taxpayers

Petrol production halved

The country’s petrol production witnessed a decline of 61 percent after 2 of the 5 oil refineries shut down operations because of technical and cash-flow problems, industry officials said on Wednesday. National Refinery Limited (NRL) is running on a low throughput for the last few months. It is producing just 400tons/day. Attock Refinery Limited (ARL), which adds close to 1,000tons of petrol to the national supply, is going through a planned shutdown as part of the annual maintenance needed to keep the plant and machinery running. Pakistan’s daily consumption of petrol stands at around 6,667tons/day against the existing supply of just 2,600tons.

Analyst Certification:
The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Disclaimer

The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments.
Research Dissemination Policy
Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same time.
Company Specific Disclosures
Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respective directors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Elixir Securities Pakistan (Pvt.) Ltd. may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned herein.
Other Important Disclosures
Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.

Contributed By