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.
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.
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.
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.