NCL: An unexciting story with many ifs and buts, (AKD Daily, Sep 14, 2020)
AKD Daily
NCL: An unexciting story with many ifs and buts
- We revise down our earnings estimate for NCL by 13-24% over the forecast horizon (i.e. FY21-26F), incorporating a short term disruption from COVID-19, weak margin profile (lowered GMs by 100bps to accommodate earnings volatility post-US-China trade spat), revised payouts from the power subsidiary, and post COVID macro backdrop (i.e. reduction in interest rates).
- Consequently, our revised rolled over Jun’21 TP comes at PkR55.74 per share (vs. PkR60.53 per share previously), offering 36% capital upside from the last close.
- While valuations are enticing (FY21F P/E: 7.62(x)), NCL’s core textile business is highly vulnerable to cycles due to the risky nature of the spinning business (spinning contributes ~60% to the topline). Also, the company’s core textile earnings are capped by capacity constraints and the only growth driver is rupee depreciation.
- That said, in the near term, the recent signing of MoU between NCPL & gov’t is both earnings and cash flow positive for NCL in the short term, where implementation on the same could translate into one-off bumper dividend income of PkR2,773mn for NCL (PkR11.55 per share based on NCL’s outstanding shares).
AKD Research
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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