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EUR 9.33 For Business Accounts Only

EPCL_Margins upcycle continue amid expansion, (AKD Daily, Jun 24, 2021)

AKD Daily

EPCL: Margins upcycle continue amid expansion

  • We revisit our investment case on Engro Polymer Chemicals Ltd (EPCL), incorporating higher than expected PVC ethylene margins in 2QCY21. Our annual margin assumptions now stand at US$740/MT for CY21 vs. US$670/MT assumed earlier.
  • For 2QCY21 PVC ethylene margins clocked in at ~US$1,000/MT, up 19% QoQ on the back of persistent PVC supply disruption and soft ethylene prices. The confluence of multi-year high margins and PVC Line III commissioning in 1QCY21 should continue upward momentum in earnings.
  • Near term triggers include: (i) VCM debottlenecking to unlock 50K MT in 2QCY21 and (ii) HTDC reducing gas consumption by 10% in PVC manufacturing CY22F onwards.
  • A delay in gas price hike (incorporated 15% hike in 2HCY21) and/or higher than expected PVC ethylene margins are potential upside risks.
  • Our revised earnings of PkR13.05/8.43 per share for CY21/22F imply EPCL trading at undemanding P/E of 3.6x/5.6x. The scrip offers an upside of 56.2% at our TP of PkR74/sh at last close – Buy!

AKD Research

Underlying
Engro Polymer & Chemicals Ltd.

Engro Polymer & Chemicals Limited is a chlor vinyl chemical company. The principal activity of the Company is to produce and market chlor-vinyl products, which include poly vinyl chloride (PVC), vinyl chloride monomer (VCM), caustic soda, hydrochloric acid and sodium hypochlorite. The Company operates through three segments: poly vinyl chloride (PVC) and allied chemicals, caustic soda and allied chemicals, and power supplies. The poly vinyl chloride (PVC) and allied chemicals segment manufactures and sells PVC and allied chemicals to various industrial customers, including pipe manufacturers, shoe and packaging industry. The caustic soda and allied chemicals segment manufactures and sells caustic soda and allied chemicals to textile and soap industry. The power supplies segment supplies surplus power generated from its power plants to Engro Fertilizers Limited. The Company manufactures and markets over four grades of PVC under the brand name SABZ.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

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