Morning Briefing for Sep 08, 2011 – Standard Capital

Karachi: PTCL review: Consolidated results hiding the deteriorating picture

PTCL has been struggling since quite some time with its revenue generating ability on account of highly aggressive competition from the competitors and low quality of its products especially the landline service, which is causing people to divert from PTCL and resulting in a significant drop in its number of fixed line subscribers.

According to Standard Capital, the recent FY11 result is the product of the above mentioned problems that resulted in a 3% decline in the revenue of the company. Increase in the number of WLAN subscribers is the main factor that contributed towards PTCL’s earnings.

The cost handling by the company is also inefficient. The cost of services increased 9% Yo‐ Y. Taking the cost to sales ratio, the cost of services for FY11 was 75.6% as against 67% in the prior year hence showing that the sales did not increase in line with the increasing cost. Administration and marketing costs have increased 4% and 6% respectively on account of high employment cost, high competition and growing inflation.

The only positive aspect of the final accounts is the operating income that increased by 53%. That too, is because of high dividends from Ufone and interest income on loans given to its subsidiaries.

All margins of PTCL are weak eventually resulting in a decreased EPS yield of Rs1.46/sh which is 20% reduced from the prior year.

However, despite of reduced earnings this year, in the coming years Standard Capital expects better revenues if the EVO‐3G, the company’s new product, gains enough popularity and customer base and quality of PTCL landline service improves.

 

P and L a/c Rs ’000FY10 FY11 %chg
Revenue 57,174,52755,254,014-3%
Cost of services(38,361,472) (41,814,765)9%
GP18,813,05513,439,249-29%
Admin. and general exp. (7,121,019)(7,375,956)4%
Selling and marketing exp.(2,142,324)(2,281,485)6%
Other operating income 5,134,6467,839,61753%
PBIT 14,684,35811,621,425-21%
Finance cost(403,240) (207,519) -49%
PBT 14,281,118 11,413,906 -20%
Taxation (4,986,966)(3,985,736) -20%
PAT 9,294,1527,428,170-20%
EPS 1.82 1.46-20%
Source: KSE announcement

 

 

Standard Capital expects the company to yield a target price of Rs7/sh with FY12 EPS between Rs1.3/sh –Rs1.5/sh depending on the increase in WLAN users and success of EVO‐3G.