Intermarket Pulse: NPL: Payout under pressure, upside hinges on expansion; Neutral
We resume coverage on NPL with a Neutral rating and Jun’18 TP of PkR50/sh. With a dramatic increase in oil price unlikely, we have factored in nominal rise in FO to maintain fuel savings ahead. However, circular debt pile up may result in higher penal income and enhance the bottom-line.
On the flipside, the build-up in receivables may constrain the payout in the near term. NPL has already cut dividends in 9MFY17, where we expect full year payout of PkR3.0/sh for FY17F (vs. PkR6.0/sh for FY16). That said, partial settlement for receivables may lead to higher than expected dividends.
The expansion project remains an upside trigger; which, based on our estimates, can add PkR18/sh to our base-case valuations. However, with the expected surge in new power supply CY19-20 onwards, the materialization of the project remains uncertain.
Nishat Power Limited is a Pakistan-based company, which as an independent power producer (IPP). The principal activity of the Company includes building, owning, operating and maintaining a fuel fired power plant based on Reciprocating Engine Technology having gross capacity of 200 megawatts in Jamber Kalan, Tehsil Pattoki, District Kasur, Punjab, Pakistan. The Company is a subsidiary of Nishat Mills Limited. The Company, through its subsidiary, Lalpir Solar Power (Private) Limited, is engaged in building, owning, operating, and maintaining or investing in a solar power project having gross capacity up to 20 megawatt peak (MWp) with net estimated generation capacity of approximately 19 MWp. Its project site is located at Mehmood Kot, Muzaffar Garh district.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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