KAPCO 3QFY14 turnaround in profitability on the cards – InvestCap Research
By: lrfan Saeed,
+92-21-35205520-22 (Ext 8635)
Invest Capital Markets Limited
Board of director of Kot Addu Power Company Limited (KAPCO) is scheduled to announce its 3QFY14 result on 18Apr’14. In today’s Value Seeker we present a result preview along with our outlook and recommendation.
3QFY14: Earnings to grow 75%QoQ to Rs1.95bn on lower O&M
KAPCO is expected to post Profit after Tax of Rs1.95bn (EPS: Rs2.2) in 3QFY14 v/s Rs1.1bn (EPS: Rs1.3) during last quarter; up by 75%QoQ. The rise primarily ascribe to lower base effect. During 2QFY14, the earnings of the company dropped on account of higher Operation and Maintenance cost as plant overhauling was undergone. The completion of plant maintenance by the end of 2nd quarter is expected to bolster earnings of 3rd quarter. However, we expect top-line to remain intact QoQ on the back of relatively stable FO prices and steady dispatches during the said period. We further expect, the higher fuel efficiency of overhauled plant will contribute in 53%QoQ growth of gross profit in 3QFY14. The other operating income of the company is likely to jump 76%QoQ to Rs1.6bn primarily on mark-up on overdue receivables from WAPDA. On the contrary, finance cost of KAPCO is anticipated to rise by 77%QoQ to Rs1.7bn in 3QFY14 on the back of rising penal mark up to PSO on overdue payables and higher interest expense on rising short term borrowings.
Poor 1HFY14 result to suppress 9MFY14 performance
We expect the company will post earnings of Rs4.8bn in 9MFY14 v/s Rs5.7bn during same period last year translating into EPS of Rs5.45 v/s Rs6.42 ; down by 15%YoY. We attribute this fall to lackluster performance of the company during 1HFY14.
Outlook and recommendation
As per latest media reports, the circular debt of the energy chain has reemerged to Rs300bn in which KAPCO is one of the key victim with overdue receivables of ~Rs70bn. Furthermore, PKR appreciation of 6.7% against greenback in 3QFY14 is likely to reduce indexation payments of the company in 4QFY14.
KAPCO is currently trading at FY14E P/E of 7.8x and DY of 12.4% with Jun’14 TP of Rs62/sh. We recommend ‘Hold’ on the scrip with upside potential of 2.5% from last closing.