AKD Quotidian about — DAWH: Piggybacking on ENGRO!

Karachi, July 15, 2013 (PPI-OT): The recent announcement of temporary allocation of 6Ommcfd gas from the Man gas field to Engro Fertilizers has triggered a rally in ENGRO, where AKD Securities expects the latter’s share price to march towards AKD Securities TP of PkR2QB/share.

According to AKD Securities the good news does not end here – as per AKD Securities SoTP estimates, every 5% increase in ENGRO’s market price leads to a 3% increase in DAWH’s value.

Moreover, along with a stable dividend stream from HUBC, higher expected gas availability post CY14 to DH Fertz and incremental earnings as a result of higher gas allocation to ENGRO, AKD Securities expects DAWH’s NPAT to grow at an impressive CAGR of 45% over CY13F-CY17F.

At current market prices, the value of DAWH’s listed portfolio alone translates into PkR56/share (after applying a holding company discount of 40%), while AKD Securities TP of DAWH based on AKD Securities respective TPs of PkR2O8Jshare and PkR79/share for ENGRO and HUBC clocks in at PkR72/share which implies a robust upside of PkR23% from current levels. Buy!

ENGRO to receive 6Onimcfd additional gas: DAWH has gained 80% in CY13TD, in line with its subsidiary ENGRO, which has gained 88% in the same period on I) expectations of sustainable gas supply as part of the long-ten ii gas supply plan from dedicated fields, and ii) the recent temporary allocation of 6ommcfd gas from the Man gas field until the start of the 747MW Guddu power plant.

With regards to the latter, assuming additional gas supply for three months to ENGRO (which will allow both plants to run at 80%-85% capacity) increases AKD Securities EPS estimates for the company by an average of 37% for the CY14F-CY1 6F period.

Moreover, ENGRO’s EPS estimate for CY13F increases by 1ft9% to PkR19.3. However, these estimates do not incorporate the impact of an expected gas price hike post Ramzan, where AKD Securities expects gas price rationalization to result in a urea price hike of -PkR25O/bag.

AKD Securities expects ENGRO to continue to rally towards AKD Securities targets price of PkR2O8/share, where every 5% increase in ENGRO’s market price leads to a 3% increase in DAWH’s SoTP value.

Impressive earnings growth: Continued unavailability of gas on the SNGP network has severely dented earnings of DH Fertilizers, where the company posted NLAT of PkRl7lmn in CY12 and is expected to increase its losses to a substantial PkR69Omn in CY1 3.

That said, a possible allocation of gas from dedicated fields post CY14 could turn the company back to profits while earnings are expected to improve on the back of a steady stream of dividends from HUBC (CY13F: PkR8/share) and higher share of profits from ENGRO (CY13F: PkR3,706mn) as a result of higher gas allocation.

AKD Securities expects DAWHs NPAT to grow at an impressive CAGR of 45% over CY13F-CYI7F. Additional upside from an announced PkR 1bn investment in a bran oil plant adds gloss to AKD Securities cases.

Investment Perspective: The value of listed portfolio of DAWH (ENGRO and HUBC) at current market price arrives at PkR56/share after applying a 40% holding company discount. Incorporating DH Fertilizers value (PkRfi.4/share based on forward PIE valuation) takes DAWHs SoTP value to PkR61/share, which is 4% higher than current market price.

That said, AKD Securities revised SoTP based TP of PkR72/share for DAWH is based on AKD Securities respective TPs of PkR2O8/share and PkR79/share for ENGRO and HUBC ,and implies a robust upside of 23% froiri current levels. Buy!

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