APL: Soaring volumes and margins lifted 1QFY12 earnings

Strong 1QFY12 earnings: APL’s 1QFY12 PAT posted at PKR1.1bn (EPS: PKR15.88), up 25% YoY and beating our expectation of PKR.1bn (EPS: PKR14.30). No payout was announced with 1QFY12 result.

Volume run up + higher margins boosted gross profit: APL’s 1QFY12 gross profit advanced 45% YoY owing to FO, HSD and MS led volumetric growth of 37% YoY. Furthermore, higher margins on deregulated products, along with estimated inventory gains of PKR60mn led to 5% YoY increase in gross profit/ton.

Other income further shored up bottom line growth: Other income, which comprises of handling income and late payment income, grew by 28% YoY, and further propped up bottom line growth. Cash/share at PKR108 during 1QFY12, though up 43% QoQ, was down 19% YoY owing to APL’s higher investment in working capital.

Maintain Buy: At last closing price, the scrip offers an upside of 34% to our Jun-12 PT of PKR550 and trades at a FY12 PER of 6x. BUY!

Volume run up + higher margins boosted gross profit

APL’s market share increased to 8.2% from 7.9%, as 1QFY12 volumes surged 37% YoY primarily due to FO, HSD and MS which jumped up 12%, 121% and 85% YoY, respectively. On the other hand, GoP’s disappearing thrust on project spending owing to scarce fund has taken a toll on asphalt volumes which were down 11% YoY during 1QFY12. However, 19% YoY growth in asphalt price amid similar increase in regional prices led APL to realize 18% YoY higher margins/ton on asphalt, thereby offsetting lower volumes. Moreover, average FO price in 1Q was up 48% YoY, paralleled by the similar increase in margins/ton. With further help from estimated inventory gains of PKR60mn, gross profit/ton rose 5% YoY.

Other income shored up bottom line growth

Other income, which comprises of handling income and late payment interest income, rose 28% YoY. Growth in other income was led by 47% surge in late payment interest income followed by handling income which surged 27% YoY amid 10% YoY increase in naphtha export. APL is dealing efficaciously with working capital needs by passing on all the increase in overdue receivables (owing to increasing FO sales) to its supplier, thus almost netting off the interest cost on overdue payable with income on overdue receivables. Cash/share at PKR108 during 1QFY12, though up 43% QoQ, was down 19% YoY due to APL’s increasing investment in stock in trade in order to feed its growing retail expansion.

Maintain Buy

We maintain our estimates for FY12, though, higher asphalt volumes during the remainder of FY12 shall remain an upside to our FY12 estimates. At last closing price, the scrip offers an upside of 34% to our Jun-12 PT of PKR550 and trades at a FY12 PER of 6x. BUY!

Economic & Political News

State Bank seeks investment details of financial institutions

The State Bank of Pakistan directed all the financial institutions to report portfolio of their investment in the public and private sectors.

October current account deficit at USD220mn

Current account deficit stood at a provisional USD220mn in October, compared with a deficit of USD1.03bn in the previous month, the central bank said. For the July-October period, the deficit stood at a provisional USD1.56bn, compared with USD54mn in the same period last year, according to data from the State Bank of Pakistan.

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