AKD Quotidian about — EFOODS 1HCY12 Result Preview

Karachi, July 11, 2012 (PPI-OT):  EFOODS will be declaring its 1HCY12 results on Jul 17’12.

According to AKD Securities forecasts the company’s bottomline to grow by 4.7x YoY to PKR 1,015 million (EPS: PKR 1.35) during the review period. For 2QCY12, AKD Securities forecasts NPAT to stand at PKR 530 million (EPS: PKR 0.70), which would represent a sequential growth of 9%. At current levels, AKD Securities has a Neutral stance on the scrip which is trading at a slight premium to AKD Securities’ Dec-end price target of PKR 69.

1HCY12 earnings to grow 4.7xYoY: EFOODS is forecast to post an NPAT of PKR 1,015 million (EPS: PKR 1.35) in 1HCY12 which would represent an earnings growth of 4.7xYoY. Earnings growth will likely be driven by a 52%YoY expansion in topline to PKR 20.8 billion. Similarly, gross profits are forecast to grow by 68%YoY to PKR 4.9 billion where besides the revenue growth, improvement in GMs (+220bps YoY to 23.6%) will also contribute to the gross profit growth. Dairy Segment is expected to continue being the star performer where AKD Securities estimates the segment’s revenue to grow by 59%YoY to PKR 19.6 billion while operating margins are also expected to improve by 276bps YoY to 6.8%. On the other hand, Ice Cream segment revenue is estimated to fall by 7%YoY to PKR 1.3 billion, where an extended winter season coupled with frequent electricity outages are expected to hurt sales.

EFOODS: 1HCY12 Result Preview

(PKR million)1HCY12FYoY2QCY12FQoQ
Net sales20,79852%11,13215%
Gross profit4,91068%2,65418%
S and A expense2,80937%1,50916%
Operating profit2,101142%1,14520%
Financial charges5230%31450%
PBT1,553364%81510%
PAT1,015369%5309%
EPS (PKR @ 752 million sh.)1.350.70

Source: AKD Research

2QCY12 EPS to stand at PKR 0.70: AKD Securities expects EFOODS to register a 9%QoQ growth in profitability to PKR 530 million (EPS: PKR 0.70) in 2QCY12, following a 15% increase in revenue and a 50bps improvement in gross margins. Besides the volumetric growth in sales, increase in milk prices by ~15% during the quarter is expected to augment Dairy segment revenues. Seasonal uptick in Ice Cream demand is also expected to bolster the Ice Cream segment revenues, however despite the uptick in sales, the segment is expected to record an operating loss of PKR 103 million during 2QCY12.

Positives priced in for now: EFOODS has been the outperformer at the KSE with CYTD return of 224%. Furthermore, the scrip has rallied strongly in Jul’12TD (+12%), possibly on expectation of improved profitability in 2QCY12. However, AKD Securities believes that positives for EFOODS are priced in for now and recommend a Hold at current levels where the scrip is trading at a 5% premium to AKD Securities’ Dec- end price target of PKR 69. While AKD Securities remains bullish on the long term prospects of EFOODS given the huge potential in the packaged milk industry, concerns emanate from the company’s ability to raise further financing given the domestic banking sector’s heavy exposure to the Engro Group.