Karachi, August 12, 2022 (PPI-OT): ASTL and MUGHAL: 4QFY22E Result Previews

ASTL – Earnings to clock in at PkR6.82/sh in FY22: ASTL is slated to announce its 4QFY22 result (18th Aug’22), where we expect the company to record a nominal profit of PkR191mn (EPS: PkR0.64) vs NPAT of PkR443mn (EPS: PkR1.49) in 4QFY21. This will take FY22 NPAT to PkR2.03bn (EPS: PkR6.82) on the back of higher rebar prices up 56%YoY against NPAT of PkR1.4bn (EPS: PkR4.61) in FY21. The expected decline in the earnings for the quarter primarily emanates from imposition of super tax, rising finance cost (+15.3%QoQ) and a 2%QoQ decline in the topline largely on account of 11%QoQ lower rebar volumes. Gross margins are likely to clock in at 11.0% compared to 10.7% in 3QFY22 because of declining scrap prices (5.6%QoQ) and effective pass-on of the input costs (rebar prices +14.3%QoQ).

Moreover, the decline in profitability is a result of the super tax applicable for the quarter where ETR for 4QFY22 is likely to clock in at 62% vs 6% in 3QFY22. For FY22, the jump in profitability comes on the back of robust growth in topline +48%YoY amid a massive jump in rebar prices +44.4%YoY with a gross margin of 11.7% in FY22 vs 11.6/7.4% in FY21/20. Furthermore, a massive rise of 37%YoY in finance costs is likely to keep the pressure on the bottom line. Moreover, we don’t expect ASTL to announce any payout in the upcoming financial result. The company currently trades at FY23 P/E of 4.6x while 3-yr PEG stands at 0.29x with our TP of PkR35/sh providing an upside of 28% from the last close.

MUGHAL – Earnings to clock in at PkR14.1/sh in FY22: MUGHAL is slated to announce its 4QFY22 result, where we expect the company to record a profit of PkR360mn (EPS: PkR1.07) vs NPAT of PkR920mn (EPS: PkR2.74) in 4QFY21. This will take FY22 NPAT to PkR4.6bn (EPS: PkR13.98) on the back of higher rebar prices and PkR depreciation supporting copper prices against NPAT of PkR3.4bn (EPS: PkR10.21) in FY21. The expected earnings for the quarter primarily emanate from 22%YoY/QoQ growth in the topline largely on account of higher volumes (low base effect in both ferrous and non-ferrous) and higher rebar prices (+44%YoY/14.3%QoQ). Gross margins are likely to clock in at 12.32% compared to 12.07% in 3QFY22 because of soaring rebar prices (+14.3%QoQ) and hefty PkR depreciation (9%QoQ) which helped in declining non-ferrous margins.

Moreover, the decline in the bottom line is a result of the super tax applicable for the quarter where ETR for 4QFY22 is likely to clock in at 66% vs a tax credit of 13.2% in 3QFY22 and a higher finance cost (+18%QoQ). Similarly, for FY22, the topline is expected to increase by 46%YoY due to sustained ferrous and higher non-ferrous margins which should neutralize the impact of the decline in offtake by 4.3%YoY, and higher scrap prices. The scrap prices touched an all-time high of US$700/ton during Mar’22 while avg. at US$498/ton in FY22, up 35%YoY. Gross margins are likely to settle around 14.9% for FY22F vs 14.9% in FY21. The company currently trades at FY23 P/E of 5.3x while 3-yr PEG stands at 0.41x with our TP of PkR87/sh providing an upside of 30.2% from the last close – Buy