NCL: Fundamental weakness calls for earnings revision
NCL continues to struggle on various fronts - with company profitability declining by 14%YoY in 9MFY18 despite one-off exchange gain of ~PkR400mn (EPS impact: PkR1.66/sh). While topline growth remained robust on the back of upbeat yarn demand (+17%YoY), NCL's gross margin (-9bpsYoY) failed to improve particularly in the value added segment (that comprises 40% of the company's topline) despite upturn in yarn cycle and incentives under export package. Additionally, lower payout from its power subsidiary amidst circular debt crisis (payout: ~PkR188mn in 9MFY18 vs. PkR564mn in 9MFY17) and higher financing cost in the wake of expansionary efforts being undertaken, have put additional strain on company's profitability. With margins expected to remain under pressure (more so in the absence of export incentives from FY19) and cut in payout from NCPL (due to reduction in tariff post FY20 and gradual phasing out of FO based plants), we revise down our earnings estimates for NCL by 14-21% over FY18-23E, while consequently bringing down our TP to PkR57.2/sh. While fundamental outlook remains weak, any decision to continue with export incentives in the new textile policy remains the only bright spot for now.
Nishat (Chunian) Limited. Nishat (Chunian) Limited is a Pakistan-based textile company. The Company is principally engaged in the business of spinning, weaving, dyeing, printing, stitching, processing, doubling, sizing, buying, selling and otherwise dealing in yarn, fabrics and made-ups made from raw cotton, synthetic fiber and cloth and to generate, accumulate, distribute, supply and sell electricity. The Company operates in four business segments, which include Spinning, which produces a range of yarn using natural and artificial fibers; Weaving, which produces a range of greige fabric using yarn; Processing and Home Textile, which is engaged in processing greige fabric for production of printed and dyed fabric and manufacturing of home textile articles, and Power Generation, which is engaged in generating and distributing power. The Company has a spinning production of approximately 75,000 tons of yarn, three million meters of greige fabric in weaving and four million meters of finished fabric per annum.
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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