AKD Securities Limited - AKD Daily (April 27, 2023)

Brokerage

AKD Securities Limited – AKD Daily (April 27, 2023)

April 27, 2023

Karachi, April 27, 2023 (PPI-OT): MCB, UBL, FABL, NML, NCL, FFC, HUBC Result Previews

MCB - Expecting EPS of PkR9.9/sh in 1QCY23: MCB Bank Limited is expected to post earnings of PkR11.7bn (EPS: PkR9.9) for 1QCY23 when the board meeting convenes later today, showing an increase of 31%YoY, while lower by 9%QoQ. NIMs are expected to expand to 6.2% in 1QCY23 vs. 5.8% in the previous quarter, aiding in a 10%QoQ increase in the bank’s NII. Despite this, our expectations for a provision of PkR1.1bn in 1QCY23 is expected to keep the earnings depressed this quarter, as the bank posted PkR1.5bn in reversals in 4QCY22. Further pressure to earnings comes in the form of higher tax rate applicable on the bank in 1Q (43%), compared to 35% in the earlier quarter. Alongside the earnings, we anticipate the bank to announce a cash dividend of PkR6.0/sh.

UBL - Envisaging 1QCY23 earnings at PkR8.5/sh: United Bank Limited is scheduled to announce its 1QCY23 earnings on April 28, wherein we expect the bank to post NPAT of PkR10.4bn (EPS: PkR8.5) for the quarter, experiencing a 22%QoQ decline. The bank’s NII is expected to improve by 8%QoQ and 54%YoY to PkR34.5bn in 1QCY23, driven by the interest rate hikes during the period that aided in the NIMs expanding by 44bps to 5.4% in 1Q. We anticipate the bank’s deposits to grow by 9%QoQ-higher than industry due to a large portion held in foreign currencies (~28% were foreign currency deposits at CY22 end). Despite the positives, the bank is expected to post a sequential decline in earnings, attributable to the absence of the tax adjustment that was witnessed in 4QCY22 (ETR of 25%), on account of higher taxation realized in the previous quarters of the year and ADR being higher than the 50% threshold at the year end. Furthermore, we expect the bank to announce a cash dividend of PkR6.0/sh alongside its 1Q earnings.

FABL - 1QCY23 earnings to clock in at PkR2.86/sh: Faysal Bank Limited (FABL) is set to report its earnings for the 1QCY23 on Friday. We anticipate the bank will post earnings of PkR4.34bn (EPS: PkR2.86), marking an increase of 21%/103% on a QoQ/YoY basis. The rise in quarterly earnings is attributed to expanding NIMs, which are expected to reach 5.70% during the period, up from 5.24% in 4QCY22 and 3.28% in SPLY. We expect Ijarah Sukuk (and other Islamic investments) to make up ~97% of the total investment portfolio, up from 55% in SPLY, amid the bank fast-tracking its full Islamic conversion during the last quarter. On the balance sheet front, we estimate bank’s deposits to grow by 5%QoQ alongside provisioning coverage of 89% of total NPLs. Overall, cost to income ratio is expected to remain flat at ~53%. Alongside the earnings, we expect the bank to announce a cash dividend of PkR1.0/sh for the quarter. Overall, we have a ‘Buy’ stance on the stock with a Dec’23 TP of PkR42/sh, offering a potential upside of 93% from last close.

NML - 3QFY23 earnings estimated at PkR5.2: Nishat Mills Limited (NML) is slated to announce its 3QFY23 earnings on Friday, wherein we expect the company to post NPAT of PkR1.8bn (EPS: PkR5.2), lower by 50%QoQ and 47%YoY. We anticipate the company to post sales of PkR35.7bn during the quarter, 8% higher than the earlier quarter, largely driven by better translation in PkR of export proceeds due to the 17% depreciation of the local currency, offsetting the 9%QoQ dip in exports. Furthermore, gross margins are expected to improve on a sequential basis, by a meager 80bps to 15.2% in 3QFY23, while remaining lower than the 17% posted in the SPLY. The earnings attrition can be largely attributed to higher financial charges during the period, which is a function of: i) higher borrowing against working capital requirements, and ii) increasing interest rates in the country. As a result, we expect the finance cost at NML to increase by 27% on a sequential basis, clocking in at PkR2.0bn.

NCL - 3QFY23 loss estimated at PkR7.9: Nishat Chunian Limited (NCL) is scheduled to report its 3QFY23 earnings on Friday, where we expect the company to post LAT of PkR1.9bn (LPS: PkR7.9). Net Sales are expected to grow by 7%QoQ, while remaining lower by 11%YoY, with the positives of the currency depreciation being offset by lower export sales during the period. Gross margins for the quarter are expected to improve to 3.8% in 3QFY23, compared to 2% in the earlier quarter and substantially lower than 22% averaged in 9MFY22. The improvement in the gross level profitability is expected to trickle down in the form of an operating profit for NCL in the three-month period. However, as is the case with its group company, NML, NCL is expected to face mammoth finance costs, to the tune of PkR1.9bn in the three-month period, as borrowing for working capital requirements increases in a high interest rate environment. Finance costs are expected to increase by 37%QoQ.

FFC - 1QCY23 earnings expected at PkR6.2/sh: We expect Fauji Fertilizer Company (FFC) to post NPAT of PkR7.9bn (EPS: PkR6.2) in 1QCY23, compared to earnings of PkR4.1/sh in the previous quarter and PkR4.9/sh in the SPLY. Margins for the company are expected to clock in at 39.6% for the first quarter of the year, vs. 32.2% in 4QCY22 and 35.6% in 1QCY22, with higher urea prices leading to the improvement in margins. Financial charges are likely to increase to PkR2.2bn, while heightened ST Investments will lead to Other Income of PkR4.3bn for the quarter. Furthermore, we expect the company to announce a dividend of PkR4.75/sh, in-line with the company’s 77% payout ratio recorded in the last two quarters. However, dividend payout may be lesser if the company anticipates a hike in gas prices in accordance with the SSGC and SNGPL network.

HUBC - 3QFY23 earnings to clock in at PkR7.6/sh: We expect The Hub Power Company Limited (HUBC) to post NPAT of PkR9.9bn (EPS: PkR7.6) in the third quarter of FY23, up 7%YoY, while down by 25%QoQ compared to PkR9.2bn (EPS: PkR7.1) in SPLY and PkR13.3bn (EPS: PkR10.3) in 2QFY23. We expect the company to post revenue of PkR22.7bn (+21%YoY/-10%QoQ) owing to no generation from the Hub plant in this quarter, while 94GWh were generated from the Narowal plant. The TEL plant generated merely 164GWh in the quarter, on the back of evacuation issues from Thar plants. Gross margins are expected to improve to 57% for the quarter vs. the 51% recorded in 2QFY23. After the COD of the ThalNova plant, share of profits from associates is likely to clock in at PkR4.7bn, an increase of 13%YoY, while a decrease on the quarterly basis due to the one-off insurance claim from the CPHGC plant recorded in the previous quarter. We expect the company to announce an interim dividend of PkR2.5/sh in the quarter, on top of the PkR21.25/sh announced earlier in the year, taking total payout for 9MFY23 to PkR23.75/sh. However, the management may choose to withhold payouts till the year-end given the hefty dividends released earlier in the year already.