AKD Quotidian about — Strong yarn exports bode well for NCL’s 2QFY13 result

Karachi, January 23, 2013 (PPI-OT): 1HFY13 textile export figures released by PBS yesterday showed a steady increase to US$6,459million up 9%YoY.

According to AKD Securities, yarn remains the outperformer with 1HFY13 exports increasing by a stellar 39% YoY to US$1,091million. 1HFY13 yarn export quantity increased by 51%YoY to 366,108MT. This bodes well for textile manufacturers with a high stake in the spinning segment. Chinese Yarn imports for Dec’12 clocked in at an all-time high of 168ktons, sustaining Pakistani yarn exports. However, Chinese cotton support price policy still poses a significant threat to yarn exports in AKD Securities’ view. Other outperformers in 1HFY13 included cotton cloth (up 12%YoY), towels (up 13%YoY) and readymade garments (up 13%YoY). Overall 2QFY13 textile exports went down by 3%QoQ, coming in at US$3,189million with most segments losing ground. Yarn again remained the contrarian, albeit a more subdued outperformer, increasing 5%QoQ. This reinforces AKD Securities’ expectation that yarn manufacturers will post strong results for 2QFY13. In this regard, AKD Securities expects NCL to post bumper earnings in 2QFY13 on the back of strong core operations as well as dividend income of PKR 375million (EPS impact of PKR 2.04) from subsidiary NCPL. In this regard, AKD Securities expects NCL to post 2QFY13 NPAT of PKR 707million (EPS: PKR 4.27), up 5.3xYoY and 88%QoQ. This will enable NCL to post an EPS of PKR 6.54 in 1HFY13.

1HFY13 Textile Exports: 1HFY13 textile export figures released by PBS yesterday showed a steady increase to US$6,459million, up 9% YoY. Yarn remains the outperformer on a YoY basis with 1HFY13 exports increasing by a stellar 39%YoY to US$1,091million. The decline in cotton prices since 1HFY12 caused AUP of yarn to decline by 8%YoY to US$2,980/MT for 1HFY13. The decline in AUP cut into margins and the growth in yarn exports was restricted to 39% despite an increase of 51 %YoY in the quantity exported and PKR depreciation. Other outperformers included cotton cloth (up 12%YoY), towels (up 13%YoY) and readymade garments (up 13%YoY).

2QFY13 Textile Exports: Overall 2QFY13 textile exports went down 3%QoQ coming in at US$3,189rnn with most segments losing ground. Yarn again remained the contrarian, albeit a more subdued outperformer, increasing 5%QoQ. Stable growth in yarn exports reinforces AKD Securities’ expectation of strong 2QFY13 results for yarn manufacturers.

Textile Exports: Major Categories

 1H31162RF116
 Qty.YoYAUPYoYQty.QoQAUP(US$)QoQ
COTTON YARN (tons)366,10851%2,980-6%186,4844%2,9911%
COTTON CLOTH (th. Sqm)912,134-2%1,42114%426,160-3%1,4733%
KNITWEAR (th. Doz.)52,6223%19,905-2%26,680-3%19,018-4%
BED WEAR (tons)128,700-1%6,771-6%63,7950%6,666-5%
TOWELS% (tons)77,76118%4,746-4%38,508-3%4,7901%
GARMENTS (th doz.)13,48311%66,3322%6,6490%68,5802%
Source: PBS and AKD Research

Dec’12 Trend: Textile exports rebounded in Dec’12 increasing by 5%MoM to US$1,058million with growth in yarn exports becoming more subdued. Towels and knitwear segments were the outperformers this month, increasing by 19% and 14% sequentially. Yarn exports clocked in at US$195million, increasing by a subdued 1%MoM.

NCL 2QFY13 earnings to grow 5.3xYoY: AKD Securities expects NCL to post bumper earnings in 2QFY13 on the back of strong core operations as well as dividend income of PKR 375million (EPS impact of PKR 2.04) from subsidiary NCPL. In this regard, AKD Securities expects NCL to post 2QFY13 NPAT of PKR 707million (EPS: PKR 4.27), up 53xYoY and 88%QoQ. Despite slowdown in exports across other major categories in 2QFY13, yarn exports still held their ground, which in conjunction with stable cotton prices and PKR depreciation (2%QoQ against the US$) is likely to result in slight margin improvement. Similarly, 1HFY13 earnings are forecasted at PKR 1,083million (EPS: PKR 6.54) compared with an NPAT of just PKR 48million (EPS: PKR 0.29) last year. AKD Securities is in the process of reviewing AKD Securities’ investment case for NCL and in this regard will be updating AKD Securities’ readers soon.

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