Morning Call about – 9MCY13 Result Preview – EPS to clock in at PKR 2.31/share – Arif Habib Limited

Karachi, October 22, 2013 (PPI-OT): Lower LDI minutes to drag quarterly performance Pakistan Telecom (PTC) is due to announce 3QCY13 result today 21st Oct’13.

According to Arif Habib Limited on a consolidated basis expect the company to post an EPS of PKR 0.77/share down by 14% QoQ. Lower earning during the period, primarily owes to a 2% QoQ decline in company’s Long-Distance International (LDI) minutes – average monthly minutes of 538mn in 3QCY13 versus 551mn in 2QCY13 – and a relatively subdued broadband and WLL and FLL revenues growth for this quarter.

9MCY13: PTC to report a PKR 2.31/share earning versus PKR -0.28/share Cumulatively this brings the 9MCY13 earnings to PKR 2.31/share versus a reported Loss of PKR 0.28/share in same period last year which was due to a one- off event, – Voluntary Separation Scheme (VSS) payment worth PKR 9.46bn (PKR 1.86/share) of roughly 2,630 employees.

Financial Highlights 
PKRmn                  3QCY13E   2QCY13A    QoQ   9MCY13E   9MCY12A    YoY    CY13E
Net Sales               32,009    33,381    -4%    97,571    84,900    15%   131,270 
Gross Profit            11,260    12,702   -11%    35,397    29,129    22%    47,231 
GP Margin                  35%       38%    36%                 34%    36%
Other Income             1,269     1,201     6%     3,703     4,517   -18%     4,972 
Finance Cost               357       711   -50%     2,139     2,822   -24%     2,496 
Profit after tax         3,920     4,532   -14%    11,784   (1,445)     nm    15,963 
EPS - (PKR)               0.77      0.89             2.31    (0.28)             3.13 

Source: AHL Research and Company Accounts 

Aggressive deleveraging to unfold higher earning potential
As of 1HCY13 accounts, Ufone (PTML) – PTC’s100% owned subsidiary – has cleared off PKR ~21bn of debt, making it entirely debt free. Henceforth, on a consolidated basis this should help PTC to expense-in lower finance cost. For the quarter-ending Sep-13, Arif Habib Limited estimates a massive 50% QoQ decline in its finance cost.

Alternatively, 3G license should bring in some fresh borrowing requirement Albeit this should be a short term phenomenon, considering the company run-up for fresh borrowing to support bids for the 3G spectrum auction and the Warid Telecom acquisition whose outcome is expected in the coming days.

Recommendation: ‘HOLD’ 11% upside at current trading price Hence, considering the aforementioned, Arif Habib Limited currently have a ‘Hold’ stance on PTC, Taurus Securities Limited prices target for PTC stands at PKR 28.1/share for Jun’14 (offering 11% upside from current levels) while the scrip trades at PBv and PE of 1.1x and 7.26x on CY14E.

Dividend yield of 8%, with a final cash payout of PKR 1.0/share
Arif Habib Limited expects another payout of PKR 1.0/share as a final cash dividend from PTC (though factors of 3G auction and Warid deal could test their financial muscle in a final payout), bringing total dividend payout for the year to PKR 2.0/share (DY 7.9% for the entire year)

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