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SYS, LUCK, PIOC, MUGHAL, ASTL Result Previews, (AKD Daily, Apr 27, 2023)

SYS – Expected EPS of PkR13.1 in 1QCY23: We expect Systems Limited (SYS) to post NPAT of PkR3.8bn in 1QCY23, up 2.2xYoY and 1.5xQoQ. Revenue for the quarter is expected to clock in at PkR9.9bn, up by 85%YoY. On the quarterly basis, Revenue is expected to be down by 15% owing to the one-off sale of NdcTech’s license recorded in 4QCY22. Gross margins for the company are likely to clock in at 29.3%, following a return to normalcy after the one-off transaction and the depreciation in the local currency (~85% of revenue is in foreign currencies, while ~76% of costs are in the PkR). Operating profit for the company is likely to post at PKR1.9bn, compared to PkR1.0bn in SPLY and PkR1.3bn in the previous quarter. Moreover, we expect substantial exchange gains of PkR1.8bn (PkR6.2/sh), with the PkR depreciating by 25.7%QoQ as of 31’Mar, bringing total Other Income to PkR2.3bn.

 

LUCK- 3QFY23 earnings to clock in at PkR10.9/sh: Lucky Cement Limited (LUCK) is expected to announce its 3QFY23 earnings tomorrow wherein we expect company to post unconsolidated PAT of PkR3.4bn (EPS: PkR10.9) vs. earnings of PkR10.5/17.7/sh in 2QFY23/SPLY, changing by +5%/-38% QoQ/YoY. Quarterly increase in the bottom line is majorly attributable to an increase in the other income owing to reception of dividend from LCI (Lucky Core Industries Ltd.) whereas yearly decline is on the back of absence of dividends from subsidiaries along with 3.4xYoY increase in financial charges amidst higher benchmark rates and increased borrowings. Topline is expected to decline by a mere 1%QoQ to clock in at PkR25.4bn, due to 2.6%QoQ decline in sales volume. Gross margins are expected to elevate by 40bps where the impact of increase in coal price is anticipated to be offset by expected improvement in the gas supply in the said quarter. Finally, on the consolidated accounts, earnings are expected to clock in at PkR15.8bn (EPS: PkR50.5), an increase of 51%/109% QoQ/YoY owing to high earnings from LCI (due to gain on the divestment of NutriCo Morinaga (Pvt) Limited), and improvement in LECPL earnings. Overall, we have a “Buy” call on the script with Dec’23 Target Price of PkR697/sh, offering an upside potential of 76% from the last close.

 

PIOC to report earnings of PkR3.1/sh for 3QFY23: PIOC board is scheduled to release its 3QFY23 result on 28th April, where we expect the company to post NPAT of PkR0.7bn (EPS: PkR3.1) vs. earnings of PkR1.2bn (EPS: PkR5.2) in the previous quarter, a decline of 40%QoQ. Topline is also expected to decline by 11%QoQ to clock in at PkR9.2bn vs. PkR10.3bn in quarter previously. This decline is attributable to the 13%QoQ decline in the sales volume, albeit an improvement in the retention price offset some of the impact. Gross margins are also expected to contract by 4.1ppts, settling at 23.1% for the said quarter vs. the previous quarter’s 27.2%, mainly due to unprecedented closing stock (WIP/FG inventory) in the previous quarter. Furthermore, finance cost is expected to rise by 6%QoQ, totaling PkR907mn, primarily on the back of increase in the benchmark rate during the quarter. Overall, this takes 9MFY23 earnings to PkR2.5bn (EPS: PkR10.9) vs. PkR1.6bn (EPS: PkR7.2) in the SPLY, an increase of 51%YoY on the back of increase in cement price. We have Dec’23 Target Price of PkR90.2/sh on the stock that provides an upside potential of 26% from the last close.

 

MUGHAL – Earnings to clock in at PkR4.95/sh in 3QFY23: MUGHAL is scheduled to announce its 3QFY23 result on Monday, where we expect the company to record NPAT of PkR1.66bn (EPS: PkR4.95), up 2.5x/98% QoQ/YoY. It is worth noting that the strong incline in earnings is majorly attributed to sharp increases in retail prices of long-steel goods (PkR/USD depreciation and raw material shortages) during the outgoing period alongside readily available low-cost scrap inventories amidst relatively unrestricted imports for MUGHAL. Moreover, the resurgence of China's demand, driven by the complete recovery from COVID-related lockdowns in the country, is anticipated to have significantly boosted non-ferrous offtakes, where-in we expect sales from the said segment to stand at ~3k tons vs. 1.6k tons from previous quarter lows. For this this reason, gross margins for the quarter are expected to in at ~16.0% for the period vs. 1HFY23 average of 11.2%. Overall, wrenching supply chain and import issues alongside a broad based economic down-turn (LSM: -5.45% during 8MFY23) continues to impact the overall sustainability of the Steel/Engineering sector where-in finished long-steel prices currently stand north of PkR280k/ton (up by ~20% vs. the previous quarter). Therefore, it will be important to keep an eye on how the company manages these challenges in the near-term. The company currently trades at a forward P/E of 3.0x with our TP of PkR70/sh providing a capital upside of 34% from the last close – Buy.

 

ASTL – EPS to clock in at PkR1.60/sh in 3QFY23: Amreli Steels Limited is scheduled to announce its 3QFY23 result today, where we expect the company to record PAT of PkR475mn (EPS: PkR1.60), upby 222%QoQ vs LAT of PkR389mn (LPS: PkR1.31) in the previous quarter. Assuming flattish long-steel offtakes on a quarter-on-quarter basis, gross margins are expected to stand at 15.5% during the period. Furthermore, finance costs (up by 21%YoY for the quarter) are likely to pressure the bottom line as company’s total debt as of 2QFY23 stood at PkR23bn (up by PkR3.8bn vs. June’22). The company currently trades at a forward P/E of 2.9x while our TP of PkR25/sh provides an upside of 38% from the last close. However, from the perspective of capital market, we advise investors to remain wary of new positions in the steel/engineering sector due to the cyclical nature of the business and the prevailing economic situation in the country.