Morning Call about Nishat Chunian Power Limited – Arif Habib Limited

Karachi, November 06, 2012 (PPI-OT): FY13 to be another year of luring dividend

Nishat Chunian Power Limited’s (NCPL) profit after tax for 1QFY13 clocked in at PKR 589 million (EPS: PKR 1.60) against PKR 580 million (EPS: PKR 1.58) in 1QFY12.

According to Arif Habib Limited, the earnings experienced a meager growth of 2% YoY. This subdued growth was mainly due to lower load factor of 60% in 1QFY13 (79% in 1QFY12), which primarily dragged the gross profit by 10% YoY. However indexation adjusted due to PKR devaluation and efficiency gains provided some cushion to gross profit.

In addition a 9x YoY jump in other operating income further supported the bottom line. Arif Habib Limited’s discussion with the management suggests that a major fraction of this income constituted of unrealized gain from derivative financial instruments, contributing PKR 38 million to the bottom line. Conversely, Arif Habib Limited believes this gain to be one off and do not expect to continue in coming periods.

Financial Highlights          
PKR million 1QFY13 4QFY12 QoQ 1QFY12 YoY
Sales

5,262

5,487

-4%

6,225

-15%

Cost of Sales

3,987

4,317

-8%

4,813

-17%

Gross Profit

1,275

1,170

9%

1,412

-10%

Administrative Expenses

19

55

-65%

18

8%

Other Operating Income

53

9

6x

6

9x

Profit from Operations

1,310

1,124

17%

1,399

-6%

Finance Cost

718

730

-2%

817

-12%

Profit before taxation

591

394

50%

582

2%

Profit after taxation

589

391

50%

580

2%

Earning per share (PKR)

1.60

1.07

1.58

Sources; Company financials and AHL Research

Trade debts piling up again

In the light of Supreme Court’s order, NCPL received PKR 4-5 billion from overdue receivables during 1QFY13. The company is expected to receive further PKR 2.5 billion in November 2012; On the other hand, as on average NCPL generates invoices of ~ PKR 2 billion /month to NTDC, slow recovery of these invoices have piled up trade debts again to a level of PKR 11 billion. Arif Habib Limited believes that in FY13, being an election year, the government will be compelled to prompt up payments, to facilitate smooth operations of power companies.

Earnings to grow by 21% in FY13

NCPL operated at a load factor of 40% in July-12. Nonetheless, better generation statistics in subsequent months pushed the average capacity factor to 60% in 1QFY13. With the October-12 number close to 84%, Arif Habib Limited foresees an average load factor of 75% in FY13, forming the basis of expected net profit after tax of PKR 2,457 million (EPS: PKR 6.69). On similar grounds, Arif Habib Limited anticipates the company to maintain its policy of healthy payouts, distributing PKR 4/share as cash dividend in FY13.

Recommendation

Based on dividend discount model, Arif Habib Limited’s Dec-12 target price for NCPL works out to the tune of PKR 22.1/share, offering a 25% upside potential from last closing. Arif Habib Limited expects NCPL to pay a cash dividend of PKR 4/share in FY13, culminating into a yield of 23%. Healthy payout and a strong upside potential make the scrip one of the attractive bets in IPP universe. Thus, Arif Habib Limited maintains Arif Habib Limited’s BUY stance for the stock.

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