Karachi, February 12, 2014 (PPI-OT): Dividend income support to increase earnings by 50%QoQ!
Arif Habib Limited reiterates Arif Habib Limited’s ‘BUY’ stance on Nishat Mills Ltd (NML) with Jun’14 TP of PKR 158.6/share offering an upside of 18.2% (PEx 5.73 and PBx 0.77on FY14E).
According to Arif Habib Limited, going forward, Arif Habib Limited foresees attrition in core earnings of NML with GSP+ status impact on incremental EU export sales and capacity expansion of 28,800 spindles (at Feroze Wathan plant) to come in play.
2QFY14 EPS expected to clock in at PKR 6.71/share, up 50% QoQ
With NML scheduled to announce its result on 14th Feb’14, Arif Habib Limited expects earnings to jump 50%QoQ to clock in PKR 6.71/share in 2QFY14 (PKR 11.18/share in 1HFY14). This jump is expected mainly on account of a 66% rise in other income as the company will realize dividends from its associates. Arif Habib Limited expects NML to post a 38% YoY earnings growth in 1HFY14 to PKR 11.18/share compared to PKR 8.13/share in the same period last year.
Financial Highlights PKR mn 2QFY14E 1QFY14A QoQ 1HFY14E 1HFY13A YoY Sales 14,025 13,579 3% 27,604 26,317 5% Gross Profit 2,904 2,499 16% 5,403 4,385 23% Gross Margins 20.7% 18.4% 12% 19.6% 16.7% 17% Other operating income 1,113 672 66% 1,785 1,394 28% Profit from operations 2,842 2,136 33% 4,978 1,625 206% Finance cost 342 383 -11% 725 831 -13% Profit after taxation 2,359 1,572 50% 3,931 2,858 38% EPS: (PKR) 6.71 4.47 11.18 8.13 Source: Company accounts and Arif Habib Research
Stable cotton prices keeping core operating margins intact
Further to support core operating margins, cotton prices have remained relatively stable averaging around PKR 6,658/maund in 1QFY14 v/s PKR 6,646/maund in 2QFY14. Looking ahead, Arif Habib Limited does not see any major upswing in cotton prices, given stable local market supply.
Export sales to continue its increasing trend
Arif Habib Limited believes, NML (~3% export market share) will continue to show an increase in its export sales in 2QFY14 as witnessed in 1QFY14 by 6% YoY mainly due to a significant PKR to USD depreciation of 4% QoQ. This Arif Habib Limited believes will push up gross margins in 2QFY14 to 20.7% from 18.4% in 1QFY14.
Energy shortage and tariff hikes to have marginal impact
Unlike most Textile mills’ vulnerability to energy shortages and tariff hikes, NML is relatively immune from such factors as it can run captive powers in four of its mills through coal (30%) and alternative means mainly biogas (70%). We believe this will minimize the impact of rising fuel-power costs for NML.
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