APL: FY11 EPS expected at PKR56.35

FY11 EPS expected at PKR56.35: APL is scheduled to announce its financial results for FY11 on September 10, 2011. We expect the company to post profit after tax of PKR1.1bn (EPS: PKR16.52) for 4QFY11, up 13% QoQ and down 10% YoY, which shall take FY11 earnings to PKR3.9bn (EPS: PKR56.35), up 8% YoY. We also expect final payout of PKR15/share, taking aggregate dividend to PKR26.5/share in FY11.

FY11  volumes ↑ 11% YoY on robust HSD, MS and FO performance: APL’s FY11 volumes were up 11% YoY, primarily due to HSD, MS and FO which observed 7%, 41% and 51% growth in their volumes, respectively. 4QFY11 volumes edged up by staggering 26% YoY to register highest ever quarterly volumes.

55% YoY up in other operating income to further bolster bottom line: 19% YoY higher naphtha export is expected to result in 34% YoY jump in commission and handling income during FY11. In addition, owing to rising receivables we expect APL to book penal mark up of PKR755mn during FY11, up 147% YoY.

Depressed margins on HSD to weigh down 4QFY11 gross earnings: APL’s 4QFY11 HSD margins at PKRO.48/liter remained 64% lower than normal margins of PKR1.35/liter, which shall taper 4Q gross profit by an estimated PKR220mn. 4QFY11 EPS with normal margins on HSD would have been higher by PKR2.

Investment perspective: Based on FY11 asphalt volumes we have revised our asphalt future volumes estimates which have slightly trimmed our future earnings by 1%. At yesterday’s closing price, the scrip offers potential upside of 49% to our Jun-12 PT of PKR550/share and offers FY11 dividend yield of 7%. BUY!

FY11 volumes 11% YoY on robust HSD, MS and FO Performance

HSD, MS and FO have seen stellar growth in their volumes during FY11, which were up 7%, 41% and 51%, respectively. This resulted in 11% YoY growth in volumes during FY11 and increased APL’s market share to 8% from 7% in FY10. Bulk of the growth in volumes came in 2HFY11, as 1HFY11 remained dismal with 1% YoY decline in volumes. 4QFY11 volumes soared by staggering 26% YoY to register highest ever quarterly volumes. Volumes for asphalt, which has historically comprised more than 50% of core profit, were down by 34% YoY during FY11. Asphalt is estimated to have comprised 34% of core profit in FY11. However, dismal asphalt sale are expected to be offset by the striking FO sale growth. Favorable movements in local oil prices during 4QFY11 are expected to result in estimated inventory gains of PKR333mn in 4Q.

55% YoY up in other operating income to further bolster bottom line

19% higher YoY naphtha export shall beef up the commission and handling charges which is estimated to touch PKR1.2bn (up 34% YoY) during FY11. Moreover, rising receivables, which are expected to move in tandem with rising FO sale, shall result in a whopping 147% jump in mark up income during FY11. With an estimated cumulative 58% YoY increase in penal mark up and commission and handling charges, other operating income is expected to increase by 55% YoY during FY11. However, 134% YoY higher expected financial charges shall remain a taxing factor during FY11.

Depressed margins on HSD to weigh down 4QFY11 gross earnings

HSD ex-depot price is based on an average of PSO import cost and local procurement, which often squeeze margins for small players which usually buy HSD from local refineries. This results in low or even negative margins on HSD in times of cheaper imports by PSO. APL’s realized margins on HSD for 4QFY11 at PKR.48/liter stayed nearly 64% lower than normal margins of PKR1.35/liter, which is expected to raze estimated PKR220mn from 4Q gross profit. 4QFY11 EPS with the normal margins would likely have been higher by PKR2 to PKR18.53.

Economic & Political News

Power tariff increased by PKR2.04 per unit

The National Electric Power Regulatory Authority (Nepra) has approved an increase of PKR2.04 per unit in power tariff of electricity distribution companies for July, excluding Karachi Electric Supply Company, under the monthly fuel price variation adjustment formula.

Payment to IPPs: Finance may borrow PKR100bn from banks

The Finance Ministry is likely to borrow PKR100bn from commercial banks to pay at least half of the overdue amount of independent power producers (IPPs), against total dues of PKR210bn. Sources said that the committee would recommend immediate increase of electricity prices by up to 12% to the Prime Minister which the committee believes is necessary to deal with inter-circular debt.
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