DGKC: Expansion to drive up valuations – By IIS Research
We have reinitiated our coverage with a buy call on the DGKC, having an upside of 28.1% to our target price of PKR 211.5 per share till Dec-16. Earnings are expected to grow at a 5-year CAGR of 10% on the account of i) increased capacity utilization leading to growth in volumetric dispatches ii) completion of coal power project iii) healthy dividends from the associated to supplement core income and iii) capacity expansion in south together with demand of cement from construction projects of CPEC. Further, we have tweaked our model by incorporating future expansion and incremental earnings from coal power project. We have sanguine outlook for the scrip due to:
- Increase in industrial utilization level from 75% for 1HFY15 to 80% in 1HFY16. As far as MRQ (Most recent quarter) is concerned, the utilization of industry ramped up to 87% against same period last year.
- DGKC is a group play as it generates almost ~30% of its net income from associate companies.
- 42% surge in PSDP disbursement. Releases amount to PKR 336.2 bn as compared to PKR 236.71 bn last year. Further, due to higher quarterly ceilings in the last two quarters of the fiscal year, we expect upbeat construction activity. Following table depicts the release mechanism:
By: Ismail Iqbal Securities (Pvt.) Limited