In our today's morning report we
would discuss the performance of the Power sector during the 9MFY15. We have
taken four companies of the sector in contribution which includes; The Hub
Power Company Limited, Kot Addu Power Company Limited. (KAPCO), Nishat Power
Limited (NPL) and Nishat Chunian Power Limited (NCPL).
Earning Surge by 29%:
Profitability of the power sector
remained noteworthy during the 9MFY15 as cumulative earnings swell by 29% YoY.
In the 9MFY15, power sector earned a profit after taxation (PAT) of Rs 18.62
billion as against a PAT of Rs 14.45 billion. Amazing performance mainly driven
by lower maintenance cost, efficiency gains, higher production bonus on account
of better load factor and rise in other income. However in 3QFY15, profitability
decline by 10% QoQ to Rs 5.51 billion versus Rs 6.13 billion in 2QFY15 due to
higher maintenance cost.
Lower FO Prices Drag Top-line:
Net sales of the sector remained
lower as it fall by 12% YoY to Rs 215.08 billion versus Rs 245.44 billion in
9MFY14 mainly due to sharp drop in furnace oil prices and lower load factor on
account of circular debt. Cost of sales also declined sharply by 16% to Rs 185.46
billion against Rs 221.58 billion in 9MFY14 which translated into robust gross profit
as it surge by 24% YoY to Rs 29.62 billion versus Rs 23.86 billion in 9MFY14.
Other Income Supported Well:
Mainly on back of 85% YoY rise in
the other income segment of KAPCO due to higher panel income, the other income
of the segment managed to post a significant rise of 78% YoY to Rs 5.30 billion
in 9MFY15 as against other income of Rs 2.98 billion in 9MFY14.
KAPCO Remain Top Performer:
Kot Adu Power Company was the
best performer among other companies in the sector as its profitability
increased by 37% YoY in 9MFY15 due to higher capacity purchase payment, lower
maintenance cost, and hefty surge in other income. KAPCO earned a PAT of Rs
7.12 billion (EPS: Rs 8.09) as compared to a PAT of Rs 5.21 billion (EPS: Rs
5.92) in 9MFY14. KAPCO was followed by Hub Power Company with 31% YoY growth in
its earnings.
Recommendations:
We have a neutral stance on the
sector with our Dec'15 target price of HUBC and KAPCO is Rs 103/share and Rs
92/share respectively.
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