Morning Call about – 1HCY13 earnings estimates and Budgetary highlights – Arif Habib Limited

Karachi, June 14, 2013 (PPI-OT): Gov’t forecasts PKR 6.5bn (DPS 2.05) dividend from PTC in Budget FY14 The incoming elected gov’t has kept the dividend forecasts for PTC in FY14 unchanged from FY13’s budgeted at a target of PKR 6.5bn which translates into a DPS of PKR 2.05. It is to be noted due the VSS payment in 1QFY13 (before PTC changed its year end from FY to CY basis) of PKR ~11bn, the company prudently didn’t make any payouts.

According to Arif Habib Limited with the calendar year now on CY basis, Arif Habib Limited would expect payouts from the company more likely to be made towards the New Year end rather than an interim payout. On the other hand, telecom industry has shown its discontent with the increased 19.5% FED and 10% WHT on telecom services. It is worth to be noted that telecom industry remains the most taxed sector and as a result one of the biggest contributors to national exchequer.

Payout maybe dented due to 3G Auction
As of developments lately a petition was filed in the Supreme Court (SC) by Secretary of Information Technology, Pakistan Telecommunication Authority (PTA), Frequency Allocation Board and USF for the earliest possible auction of 3G auction.

The petitioners argued that the auction is long overdue and has been delayed on numerous occasions before. With the SC taken notice of the matter and gov’t also firmly committed for the auction to take place in the current FY14 year (forecasted amount to be raised from auction est. around USD 1.2bn), Arif Habib Limited foresees the auction to take place within the CY13 and to dent PTC’s payout slightly.

Given that the auction takes place before end of CY13, the gov’t forecasted dividend of PKR 2.05 may be lowered as the company being a front runner in the 3G spectrum. Although the company has sufficient cash balances (as of 1QCY13 PKR 5.4bn) funds for the auction, Arif Habib Limited has conservatively kept CY13E DPS forecasts at PKR 1.75/share.

1HYCY13 earnings forecast
For 2QCY13, Arif Habib Limited sees PTC post a consolidated EPS of PKR 0.60 (1HCY13 PKR 1.26), on basis of continuation of ICH rates (stabilization of mins around 550- 600mn mark and int’l incoming call rates of USc 8.8/min), healthy revenue uptake of broadband and Ufone. Going forward for CY13 (EPS 2.52) earnings Arif Habib Limited remains upbeat on the same assumptions.


Financial Highlights (PKR mn)   1QCY13A  2QCY13E    QoQ   1HCY13E   1HCY12A    YoY     CY13E
Net Sales                        32,181   30,286    -6%    62,467    55,834    12%   124,946 
Gross Profit                     11,435   10,674    -7%    22,109    19,513    13%    44,133 
GP Margin                          36%       35%    35%       35%       35%
Other Income                      1,233    1,091   -12%     2,324     3,490   -33%     4,506 
Finance Cost                      1,070      974    -9%     2,044     1,885     8%     4,036 
Profit after tax                  3,331    3,081    -7%     6,412     6,815    -6%    12,852 
EPS                               0.65      0.60    -7%      1.26      1.34    -6%      2.52 

USD 800mn – 400mn recoverable from Etisalat a possibility now?

Gov’t in FY14 budget has been firm on its stance to recover an amount of USD 800mn from Etisalat (due from privatization proceeds of properties). Arif Habib Limited backs channel sources have suggested that a half amount of USD 400mn may be agreed with Etisalat as a compromise between both parties, this has been a matter that has been pending since the past 5 years.

With PML N Gov’t having better relations on the Middle East front, this may be seen as plus point on the negotiating table with Etisalat, though it may be too early anticipate a conclusion on the matter.

Recommendation
Arif Habib Limited maintains ‘BUY’ call on PTC with a TP of PKR 28.3 (CY13) based on Arif Habib Limited DCF model. The scrip is currently trading on CY13E PE multiple of 9.3 times, offering an upside of 20% from current levels and a DY of 7.4%.

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