AKD Quotidian about — EFOODS 1HCY12 analyst briefing key takeaways

Karachi, July 19, 2012 (PPI-OT):  EFOODS held its 1HCY12 analyst briefing yesterday to discuss result as well as future outlook. EFOODS posted and NPAT of PKR 1,018 millin (EPS: PKR 1.35) in 1HCY12 which denotes a massive 370%YoY growth. Net sales for the company were up by 45%YoY, boosted by robust performance of the flagship ‘Dairy’ segment with revenues up by 51%YoY to PKR 18.2 billion. For 2QCY12, earnings were up sequentially by 9% to PKR 532 million (EPS: PKR 0.71), driven by higher GMs (+227bpsQoQ). The mgmt. Has reiterated its capex spending target of PKR 8.7 billion for CY12, however 1HCY12 spending was at just PKR 1.5 billion. At current levels, AKD Securities has a ‘Neutral’ stance on EFOODS which is trading near AKD Securities’ Dec-end target price of PKR 69. AKD Securities remains bullish on long term prospects of EFOODS, however concerns over access to further financing, given the large exposure of domestic banks to ENGRO group could keep the upside capped in the short term.

EFOODS: 1HCY12 Result Review

(PKR million)1HCY12AYoY2QCY12AQoQ
Netsales

19,765

45%

10,099

4%

Gross profit

4,843

66%

2,587

15%

S and A expense

2,883

40%

1,583

22%

Operating profit

1,960

126%

1,004

5%

Financial charges

441

-16%

232

11%

PBT

1,536

359%

797

8%

PAT

1,018

370%

532

9%

EPS (PKR @752 million sh.)

1.35

0.71

Source: AKD Research

1HCY12 earnings grow 370%YoY: EFOODS posted and NPAT of PKR 1,018 million (EPS: PKR 1.35) in 1HCY12 which denotes a massive 370%YoY growth. Net sales for the company were up by 45%YoY, boosted by robust performance of the flagship ‘Dairy’ segment with revenues up by 51%YoY to PKR 18.2 billion. Growth was driven by a double digit in UHT ambient milk volumes as well as higher prices. ‘Ice Cream’ segment sales were also up by 13%YoY to PKR 1,555 million, while encouraging operating loss reduced by 19%YoY to PKR 166 million. Beside the growth in topline, gross profit surged 66%YoY as GMs rose by 310bps YoY to 24.5%, as margins of both the ‘Dairy’ and ‘Ice Cream’ segments improved. For 2QCY12, earnings were up sequentially by 9% to PKR 532 million (EPS: PKR 0.71). While topline growth was at a relatively tepid 4%QoQ, improvement in gross margins (+227bpsQoQ) was the real earnings driver for 2QCY12. On a segment wise basis, ‘Dairy’ segment revenues were actually 3% lower QoQ following a 1%QoQ drop in volumes, however ‘Ice Cream’ segment posted healthy results with sequential revenue growth of 180% to PKR 1,146 million, while operating loss reduced to PKR 31 million from PKR 135 million last quarter, Higher asset turnover coupled with focus on improving margins were the main factors behind the improving profitability. In this regards, EFOODS has recently introduced low cost vegetable oil as the raw material for its ice cream. S and A expenditure for 2QCY12 was up by 22%QoQ to PKR 1,583 million, which was due to higher promotional activities. Promotional expenditures are likely to fall in subsequent quarters as per mgmt. During 2QCY12, EFOODS launched the ‘Lassi’ brand, where the initial response has been encouraging.

Al Safa gaining traction: Al Safa revenues in 1HCY12 grew to CAD5.7 million, which are higher than the CY11 revenues of CAD5.3 million, while operating loss also reduced to CAD0.68 million compared with CY11 loss of CAD1.2 million. Revenue growth was helped by expansion in product offering.

Capex spending of just PKR 1.5 billion in 1HCY12: The mgmt. has reiterated its capex spending target of PKR 8.7 billion for CY12, however the 1HCY12 spending was at just PKR 1.5 billion. The company is likely to commit the full PKR 8.7 billion for CY12, however the actual cash outlay may be lower. For AKD Securities’ estimates, AKD Securities has assumed a relatively conservative capex spend of PKR 5.1 billion and PKR 6.3 billion for CY12 and CY13 respectively. Going forward, access to domestic financing could get tough for EFOODS, simply given the risks associated with lending to ENGRO group, with cash flow constraints of the ‘Fertilizer’ subsidiary.

Positives priced in for now: AKD Securities has a ‘Neutral’ stance on EFOODS which is trading near AKD Securities’ Dec-end target price of PKR 69. AKD Securities believes that the positives are already priced in where the scrip is trading at CY12 and CY13 PE ratios of 24.7x and 20.6x respectively. AKD Securities remains bullish on long term prospects of EFOODS, however concerns over access to further financing could keep the upside the capped in the short term.