Lahore: Pak Elektron Limited (PAEL) has revised its earnings expectations for 2026 and 2027, citing lower gross profit margins and reduced sales in its power segment. Despite these adjustments, the company maintains a BUY stance, projecting a 40% potential upside.

According to JS Global, the decision to revise earnings down by 44% and 27% to Rs4.7 and Rs6.2 per share for 2026 and 2027, respectively, results from lower than anticipated gross profit margins and an expected increase in finance costs due to rising interest rates. Consequently, the company has adjusted its June 2027 target price for PAEL to Rs55 per share from a previous estimate of Rs81 per share.

The company has lowered its gross margin assumptions to 26.6% and 26% for 2026 and 2027, respectively, from an earlier projection of 28% for both years. This adjustment reflects recent results and guidance from an analyst briefing. Additionally, sales from the power segment are expected to fall short of expectations due to revisions in the meter and power transformer segments. The company now aims to achieve a transformer sales target of US$50 million by 2027, with a reduced 2026 target of US$20 million. The meter business is projected to decline by 51%, influenced by recent project awards to Chinese competitors.

Conversely, the company's appliance segment is anticipated to show stronger growth, with projected sales increases of 22% and 18% for 2026 and 2027, respectively, driven by a substantial year-over-year growth of 49% in the first quarter results. Finance costs for these years have been revised upward by 23% and 20% to Rs2.3 billion and Rs1.9 billion due to the increase in interest rates. These adjustments translate into projected 2026 and 2027 price-to-earnings ratios of 8.4 and 6.3 times, respectively.