ENGRO Corporation (ENGRO): 2Q2018 EPS Rs3.62, up by 117% YoY; DPS Rs7/share (Below expectations)
- One timer and non cash prudent tax recognition in Engro Vopak Terminal (EVTL) capped Engro Corporation’s (ENGRO) earnings growth to 117% YoY. Earnings were well below the street expectations of Rs7.4-7.7/share due to one timer expense recognition of nearly Rs2bn, partly recognized under ‘(loss)/income from joint ventures’ head while remaining was booked under ‘other operating expenses’, as per our channel checks.
- ENGRO reported net sales of Rs38bn, up 29% YoY due to increase in revenue from Engro Fertilizer (EFERT), up 31% YoY and Engro Polymers and Chemicals (EPCL) up 35% YoY.
- Fertilizer business recorded growth in its sales revenue due to increase in urea and DAP prices by 10% and 20% YoY respectively. While polymer business showed robust growth in revenues due to increase in its PVC volumes.
- Selling and distribution expense went down by 13% YoY to Rs1.7bn due to lower handling cost of its fertilizer division. Similarly, admin cost fell by 2% YoY to Rs896mn.
- JV and associates posted loss of Rs918mn, vs. profit of Rs230mn in corresponding period of last year. Negative surprise in JV’s (Engro Vopak) loss was due to recognition of tax expenses on prudent basis against change in company’s tax status in 2010, that was challenged by the company in court (case is still pending in court). However the company has recognized its due portion of expense under two heads ‘Share of (loss)/profit from associates’ and ‘JV and other operating expense’. Moreover, we can not rule out the possible reversion of this amount going forward if decision comes in favor of the company.
- We highlight 1) poor crop season, 2) scarcity of water for sowing season 3) volatility in Polymer margins and 4) change in regulatory structure in energy division as key risks for the holding company.
Engro Corporation is an agri based company. Co.'s core business is the manufacturing, purchasing and marketing of chemical fertilizers and seeds. Co. is engaged in the production of Urea fertilizer in Pakistan which is manufactured at Daharki and marketed under brand name Engro. Co. also maintains a seed business and is marketing imported hybrid and open pollinated seeds of maize and sunflower crop under the brand name of Bemisal. Co. has investments in joint ventures engaged in chemical terminal and storage, PVC resin manufacturing and marketing and Automation and Controls businesses.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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