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DGKC, KAPCO & ASTL 3QFY17 Result Previews

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DGKC is scheduled to announce its 3QFY17 result today (Apr 19'17) where it is expected to post earnings of PkR2.36bn (EPS: PkR5.40), up 3%YoY. Higher earnings are expected to arise from 5%YoY increase in topline (2.4%YoY growth in total cement dispatches coupled with 6%YoY improvement in cement prices) despite expected 2.8pptYoY decline in GM to 41.6% (coal prices up 65%YoY in 3QFY17). On a cumulative basis, 9MFY17 earnings are expected to rise by 12%YoY to PkR7.13bn (EPS: PkR16.28). This is expected to result from 7%YoY growth in topline (due to 5%YoY growth in dispatches and 2%YoY growth in average local retention price) and 2.03ppt improvement in GM (attributable to operational savings from 30MW coal CPP). Having gained 1.5%CYTD, the stock currently trades at FY17F/FY18F PE of 10.8x/9.4x where our Dec'17 TP of PkR262/sh offers an upside of 16.4% from current price level. Accumulate.

KAPCO is reporting 3QFY17 earnings on Thursday (Apr 20'17) where we expect the IPP to report NPAT of PkR1.99bn (EPS:2.27) recording a tepid growth of 7%YoY/8%QoQ. Earnings are likely to be reflective of: 1) generation remaining flat YoY for the quarter (at 51% load factor), 2) pickup in cost of generation outpacing topline during the quarter depleting margins (GM of 15.6% vs. 19.0%/17.2% for 3QFY16/2QFY17), 3) completion of major overhauls in 1HFY17 keeping O&M costs for 3QFY17E in check and 4) finance costs rising as reliance on interest bearing debt grows increasing costs by 20%YoY (reducing earnings by PkR0.25/sh). KAPCO's privatization and intended incentives hang in the balance as recent news flows point to uncertainty over: 1) extension of the PPA beyond FY21, 2) overdue receivables at PkR69.7bn as of 2QFY17 - the highest level ever and 3) completion of formalities pertaining to fuel supply and expansion plans (660MW coal fired Kapco Energy). In the absence of material developments emanating from this planned privatization, we re-iterate our Accumulate stance on the scrip (PkR83.9/sh), meriting an investment case on yield alone (FY17E/18F D/Y of 12.9%/13.2%).

ASTL is scheduled to announce 3QFY17 result on Apr 20'17 where we expect earnings to decline 25%YoY to PkR280mn (EPS: PkR 0.94) primarily due to: 1) deterioration in gross margin by 416bps YoY (3QFY17F GM: 18.24%) following increase in input prices (MBSF Index up 39%YoY) despite 16%YoY increase in revenues and 2) normalization of effective tax rate to 23% (vs. 16% in 3QFY16). However on a sequential basis, GMs are likely to see improvement by 101bps QoQ in view of surging re-bars prices (+11%QoQ) and ending of low-margin trading stock. This alongwith 2%QoQ topline growth is likely to assist earnings growth of 9%QoQ in 3QFY17. On a 9MFY17 basis, earnings are expected to remain suppressed at PkR766mn (EPS: PkR2.58), a decline of 17%YoY, predominately on the back of higher input prices (+16%YoY in the period) despite our estimated 19%YoY growth in topline. With 42%CYTD return, ASTL currently trades at a FY17P/E of 27.38x where our DCF based TP of PkR80/share offers 15.5% downside, implying a reduce stance.