ATRL: Strong 4Q GRM to push FY11 EPS to PKR27.2

FY11 EPS expected at PKR27.20: 4QFY11 GRM was up by 24% QoQ, which is estimated to yield an EPS of PKR4.33 during 4QFY11, up 615% YoY. This shall take full year EPS to PKR27.20 against a dismal earnings of PKR1.48 during FY10.  We also expect ATRL to pay full year dividend of PKR5/share.

Non- refinery income to shrink in 4Q: We do not expect ATRL to book any dividend income from its associate companies during 4Q. Other income, which primarily comprises of penal mark up on late payment from OMC is expected to remain 12% lower QoQ during the quarter, expected at PKR451mn.

Lower MS ex-refinery price for July-11 pose downside risk to earnings: July-11 MS ex-refinery price at PKR60.47/liter translates into a RON rating of 88.7 using old MS pricing formula, due to cheaper PSO import. Jun-11 ex-refinery prices were 4.3% (↑PKR2.66/liter) higher than the price derived using old (87 RON penalty adjustment) formula, due to which we had revised up our annual GRMs assumption by 21%. Lower July-11 ex-refinery prices, which are just PKR1.3/liter higher than old formula derived price, could result in 10% decline in our annual GRM assumption and 20-22% decline in our future earnings estimate. However we have maintained our earnings estimates for now.

Investment perspective: At yesterday’s closing price the scrip trades at a discount of 10% to our June-12 PT of PKR140 and offers FY12 dividend yield of 5%, translating into total return of 15%. BUY!

FY11 EPS expected at PKR27.20

ATRL’s GRM for 4QFY11 was up 24% QoQ which is expected to yield an EPS of PKR4.33 during 4QFY11. This shall take full year earnings to PKR27.20, against a dismal earnings of PKR1.48 during FY10. Due to imposition of 15% flood surcharge, applicable from 15 March 2011, we have used tax rate of 40% (higher of turnover tax and 40%) in our tax calculation for 4QFY11. We expect ATRL to pay full year dividend of PKR5/share.

Non- refinery income to shrink in 4Q

In line with historic trend, ATRL is not expected to book any dividend income from its associates. Non-refining income during 9MFY11 has already been recorded at the highest ever level of PKR1bn, primarily due to dividend income of PKR451mn (↑200% YoY) from AGL during 9MFY11. Other income which primarily comprises of penal interest earned on delayed payment from PSO, is expected at PKR438mn or 12% lower QoQ due to lower receivables from PSO during 4QFY11.

Lower MS ex-refinery price for July-11 pose downside risk to earnings

July-11 MS ex-refinery price at PKR60.47/liter translates into a RON rating of 88.7 using old MS pricing formula, due to cheaper PSO import. Jun-11 ex-refinery prices were 4.3% (↑PKR2.66/liter) higher than the price derived using old (87 RON penalty adjustment) formula, due to which we had revised up our annual GRMs assumption by 21% and earnings

by 63-82%. Lower July-11 ex-refinery prices, which are just PKR1.3/liter higher than old (87 RON rating) formula derived price, could result in 10% decline in our annual GRM assumption and 20-22% decline in our future earnings estimate. However we have maintained our earnings estimates for now. Lower GRMs, due to lower MS price, would not result in any change in our fuel business value, since we have valued fuel business using distributable free cash flows to equity which is effectively capped at 50% of 2002 paid up capital.

Investment perspective

At yesterday’s closing price the scrip trades at a discount of 10% to our June-12 PT of PKR140 and offers FY12 dividend yield of 5%, translating into total return of 15%. BUY!

Economic & Political News

Outstanding domestic debt hits PKR5.4tn mark

The country’s outstanding domestic debt registered a healthy growth of over 17% to hit PKR5.4tn mark by the end of March 2011. Sources said widening fiscal deficit and delay in transfer of funds from international financial institutions forced the federal government to enhance its reliance on domestic sources to generate more funds to meet rising expenditures.

Oil sales drop by 3.1% in FY11

Country’s oil consumption slid by 3.1% in fiscal 2011 to 19.6mn tonnes versus 20.3mn tonnes last year, despite the increasing energy appetitive and emergence of gas shortage in the country.
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