IGI Securities Limited – Off the Analyst’s Desk

Karachi, October 20, 2016 (PPI-OT): KAPCO: 1QFY17 Result Review

KAPCO posted 1QFY17 NPAT of PkR2.32bn (EPS: PkR2.63) higher by 10%YoY, but below IGI Securities Limited’s estimates on account of lower load factor in the month of September. Margins for the quarter rested higher than IGI Securities Limited ‘s estimates, at an all time high GM/OM of 18.8%/24.3% climbing 492bps/680bps over 1QFY16. Absence of major overhauls kept Cost of Sales/Opex lower by 24%/33%YoY, where as the Finance Costs witnessed an increase of 14%YoY (higher by PkR115mn), eroding profitability.

Upcoming quarters are expected to be a function of two conflicting scenarios. Firstly, lower load factors in subsequent quarters (as CPP payments make greater share of revenues) and receipt of penal income raise earnings, aiding margins. On the flip-side, any increase in fuel costs coupled with higher load factors or a major overhaul have the potential to drag earnings.

Awaiting confirmation of the GoP’s privatization priorities and citing the bullish case for an extended PPA post FY21, IGI Securities Limited retains a DDM based TP of PkR116/sh, supported by strong yield credentials (FY17E/18F D/Y of 13.1/13.4%).