Nishat Chunian Limited : Down to ‘Neutral’ on higher coal prices & low subsidiary dividend
- We revise down our earnings estimates for Nishat Chunian Limited (NCL) by 13-33% over FY18-FY21E, incorporating (i) 50/10/8% lower dividends over FY18/19/20E from Nishat Chunian Power Limited (NCPL), (ii) new coal price assumption of USD91/87/80 (up 14/16/14%), and (iii) exchange rate move.
- Resultantly, we downgrade NCL to ‘Neutral’ and our new SoTP based TP of NCL lands at PKR55/sh, which represents a total return of 14% (D/Y: 3%).
- During 2QFY18, NCL reported above-expected EPS of PKR2.44/sh, up 5% YoY. Primary reason for deviation from estimates is one-off exchange gain of ~PKR250mn (PKR1.04/sh). Excluding one-off exchange gain, EPS of the company clocked in at PKR1.4/sh, down 40% YoY, mainly due to lower dividend income.
- On the flip side, core operations exhibited significant improvement in 2QFY18 as evident by 52% YoY growth in operating profit.
- Key downside risks are (i) sharp rise in coal prices and (ii) lower than expected dividends from NCPL. Upside risks include: (i) greater than expected depreciation of PKR against USD, CNY, and (ii) extension in textile package beyond FY18.
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.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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