Pak Elektron (PAEL): 2Q2018 EPS of Rs1.3, -58% YoY (+27% QoQ); (Below expectations)
- Pak Elektron (PAEL) announced consolidated earnings of Rs681mn (EPS Rs1.3/share), down 58% YoY during the outgoing quarter. While sales were in line with estimates, earnings fell short of our expectation primarily on the back of lower gross margins.
- In 2Q2018, the company was able to improve its volumetric sales in appliances division on sequential basis. To note, the company recorded substantial YoY decline in its refrigerator and air conditioner sales in 1Q2018.
- Gross margins of the company significantly contracted by 7ppts to 23% in 2Q2018, mainly owing to currency devaluation and higher commodity prices in the international market which led to higher input costs.
- Further dent in profitability came from higher financial charges, up 82% YoY. We attribute this to increase in debt and higher interest rates.
- In 1H2018, net sales were down 14% YoY while net earnings declined by 55%. Decline in net sales was on the back of poor appliances performance where refrigerator and air conditioner sales were down by ~20% and ~8% YoY to around 264k and 66k, respectively. We believe that this was due to competition from Chinese brands like Haier and Gree.
- We flag, 1) increase in raw material costs and the company’s inability to pass it on, 2) greater than expected PKR devaluation against US$, 3) higher financial charges to fund working capital and 4) greater competition due to new entrants key risks for PAEL.
Pak Elektron Limited. Pak Elektron Limited is engaged in manufacturing and sale of electrical capital goods and domestic appliances. The Company operates through two segments: Power Division and Appliances Division. The Power Division is engaged in manufacturing and distribution of transformers, switchgears, energy meters, power transformers, construction of grid stations and electrification works. The Appliances Division is engaged in manufacturing, assembling and distribution of refrigerators, deep freezers, air conditioners, microwave ovens, washing machines and other home appliances. It offers services to power utilities, industries, individual customers, housing and commercial projects. Its engineering, procurement and construction (EPC) contracting division delivers custom designed and built high voltage and extra high voltage grid stations, electrification of housing projects and industrial parks. The Company's subsidiary is PEL Marketing (Private) Limited.
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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