LUCK: FY11 earnings meet expectations

LUCK: FY11 earnings meet expectations

FY11 earnings in-line with estimates: LUCK announced FY11 earnings of PKR3,970mn (EPS: PKR12.28) up 27% YoY and in-line with our expectation of PKR3,988mn (EPS: PKR12.33). Growth in profitability proliferated from improved EBITDA margins and increased local dispatches during FY11. 4QFY11 earnings clocked in at PKR 1,495mn (EPS: PKR 4.62), up 158% YoY.

Higher margins and dispatches drive earnings growth: EBITDA margins posted an increase of 35% YoY to PKR1,147/ton during FY11 along with a 26% QoQ increase during 4QFY11, both mushrooming from higher retention prices coupled with pre-buying/inventory pile up of coal at USD110/ton. While overall dispatches declined 12% YoY due to weak Middle East market, Local dispatches marked up by 11% YoY to 3.46mn tons led by robust growth in the southern region.

New Greenfield expansion to augment bottom-line: LUCK has partnered with Groupe Rawji to setup a 1mn ton per annum cement plant in Democratic Republic of Congo costing USD175mn and which would be financed through 46% equity and 54% debt. In our view LUCK has entered Congo to tap the potential of growing demand-supply deficit which is hovering around 2.5mn tons.

Investment perspective: At last closing price of PKR71.9/share, LUCK offers an upside of 25% to our Jun-12 price target of PKR90/share and trades at FY12/13 PER of 5.3x/6.1x. BUY! We have not factored in savings and revenues from TDF facility and power sale to HESCO and will wait for civil works to be completed. These projects are expected to add PKR10/share to our Jun-12 target price.

Higher margins drive earnings growth

Stimulant for bottom-line growth during FY11 was higher EBITDA margins. EBITDA margins posted an increase of 35% YoY to PKR1,147/ton  during FY11 (in-line with our expectation), along with a 26% QoQ increase during 4QFY11 , both mushrooming from higher retention prices coupled with pre-buying/inventory pile up of coal at USD110/ton. COGS/ton excluding depreciation rose 19% YoY and 4% QoQ during FY11 and 4QFY11 while average retention increased 21% YoY and 10% QoQ during the same period.  Higher retention prices in the local market compared to exports led LUCK to focus more on local sales where dispatches marked up by 11% YoY  to  3.46mn tons due to strong dispatches growth in the Southern region. However, the decline of 12% YoY in  overall dispatches was due to sluggish construction activities coupled with large inventory levels in the Middle East which caused LUCK’s FY11 export dispatches to fall by 33% YoY to 2.36mn tons.

New Greenfield expansion to augment bottom-line

LUCK has partnered with Groupe Rawji to setup a 1mn ton per annum cement manufacturing plant in Democratic Republic of Congo. The total cost of the project is estimated to be USD 175mn which would be financed through 46% equity and 54% debt, where LUCK would contribute USD 40 million towards its 50% share in the project.  Upon project completion (approximately 2-3 years), LUCK will book earnings from the new plant in the form of dividend income and fee charged for technical services. In our view LUCK has entered Congo to tap the potential of growing demand-supply deficit which is hovering around 2.5mn tons.

Investment perspective

At last closing price of PKR71.9/share, LUCK offers an upside of 25% to our Jun-12 price target of PKR90/share and trades at FY11/12 PER of 5.3x/6.1x. We will wait for civil and engineering works to be completed on power sale to HESCO and TDF facility to incorporate savings and revenues from these projects. These ongoing projects are expected to come online in 2QFY12 and will offer an additional PKR10/share to our Jun-12 target price.

Economic & Political News

Remittances from expatriates surge by 38.57% in July

Remittances sent home by overseas Pakistanis continued to show a rising trend as an amount of USD1, 096.31mn has been received in the country in the 1 month of the current FY2011-12, showing an impressive growth of 38.57% or USD305.13mn compared with USD791.18mn received during the same period of last fiscal year.

Qadirpur gas field closure from 28th to aggravate gas crisis

The gas availability crisis is likely to worsen after August 28 as the closure of Qadirpur gas field for annual maintenance will inflate the deficit to 700mn cubic feet of gas per day, a senior official at the ministry of petroleum and natural resources said. The final decision in this regard will be taken in the meeting to be held tomorrow (Friday) in the ministry of petroleum and natural resources. The authorities have decided to shut gas supply for 20 days to power and fertiliser sectors and general industry. Power deficit will also increase by 1500MW because of zero supply of gas.
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