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Result Previews: HMB, PSO & EFERT

HMB: 1QCY19 Result Preview

HMB to record an EPS of PkR1.31 (down 15.9/12.6% QoQ/YoY): Board of Directors (BoD) of Habib Metro Bank (HMB) is scheduled to meet tomorrow to announce 1QCY19 results. We expect the bank to post an NPAT of PkR1.4bn (EPS: PkR1.31) vs. an NPAT of PkR1.6bn (EPS: PkR1.5)/PkR1.7bn (EPS: PkR1.56) in the corresponding period last year/previous quarter, where the drag comes from higher effective tax rate, 1QCY19F: 51.8% vs. 1QCY18/4QCY18: 32.5%/39.4%. On a pre-tax basis, the bank is likely to record YoY/QoQ growth of 22.5%/5.7%. On a sequential basis, HMB is likely to witness NII growth of 11.2% primarily driven by NIMs expansion of 90bps to 4.1% as interest rate hike in the last quarter of 150bps begins to reflect in income. Coupled with stable contribution from NFI in total income (~24%), we expect cost to income ratio of the bank at 53.5%. We expect no material accretion in provisioning costs given bank carrying general provision of PkR1.2bn in CY18.

PSO: 9MFY19 Result Preview

PSO expected to record an EPS of PkR15.76 in 9MFY19: Pakistan State Oil (PSO) is expected to post an EPS of PkR15.76 for 9MFY19, down 53.4%YoY as high inventory and exchange losses take a toll on the profitability. Sales volume also plays a significant role in the decline, decreasing by 42%YoY for 9MFY19 majorly on the back of FO printing a decline of 73%YoY followed by HSD (30%YoY). Profitability for 3QFY19 is expected to improve significantly on sequential basis (27.2xQoQ) after a heavy inventory loss of PkR4.9bn in 2QFY19 resulted in a dismal EPS of PkR0.17/sh while exchange losses exacerbated the injury. We expect PSO to record inventory loss of PkR3.3bn for 3QFY19 as average decline in ex-refinery prices of 18.9%MoM in Jan’19 across three major products (MS, HSD and FO) will outweigh the gains made over the next two months. However, we highlight the risk of inventory losses surpassing our estimates—further depressing the profitability. Finance cost is expected to ease up a bit (down 17.9%QoQ) after PSO received PkR60bn from clearance of circular debt. On YoY basis, the story remains depressing with PAT down by 59.2% to Pk1.9bn (EPS: PkR4.90). Moreover, after skipping the half yearly payout, we expect company to announce a dividend of PkR5/sh as cash flow situation eases up.

EFERT: 1QCY19 Result Preview

EFERT to begin CY19 on a weak note: The board members of Engro Fertilizer Ltd (EFERT) are scheduled to meet today to announce 1QCY19 results. We expect EFERT to post 1QCY19 NPAT of PkR3.2bn (EPS: PKR2.43), down 17/37% YoY/QoQ. The YoY decline in earnings is attributable to (i) 16% YoY lower Urea offtake offsetting higher Urea price, (ii) 7 ppt YoY decline in gross margins to 36%, due to higher contribution of lower margin DAP in total offtake, and (iii) 33% YoY higher finance cost. On a QoQ basis, the decline in earnings will result from (i) 47% decline in topline, courtesy 17/76% dip in Urea/DAP offtakes, (ii) 65% QoQ lower ‘other income’, and (iii) higher effective tax rate of 32% vs. 26% in the previous quarter due to tax credits. EFERT and other fertilizer companies have followed suit by increasing Urea price by PkR80/bag effective 1st Apr’19. However, provision of gas to Fatimafert and Agritech till Oct’19 may build pressure on Urea prices, hence we delay incorporating the recent Urea price hike into our model before further clarity. Our TP of PkR61/sh imply an Underweight stance on the scrip at last close.

AKD Research