NML : Earnings to remain depress by 27% YoY in 1HFY12
Nishat Mills Limited is scheduled to hold its Board meeting on February 24, 2012 to announce its financial results for 1HFY12. We expect the company to post net income of PKR 1,493mn (EPS: PKR 4.25) in 1HFY12 compared to PKR 2,058mn (EPS: PKR 5.85) in 1HFY11, depicting a decline of 27% YoY on standalone basis. On QoQ basis we expect company to post earnings of PKR 461mn (EPS: PKR 1.31) during 2QFY12 compared to PKR 1,031mn (EPS: PKR 2.93) in 1QFY12, depicting a decline of 55% QoQ. This in our view will contract company’s gross margin to 9.9% in 2QFY12 from 10.7% in 1QFY12, owing to lower cotton prices causing inventory loss and higher fuel cost. During the 2QFY12 company only received a dividend of PKR 3.0/share from MCB due to which other income is expected to remain depressed by 45% QoQ.
(AH)
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NML 2Q FY12 Result Preview- Economic uncertainty weighs in
• NML is expected to report its 2Q FY12 earnings on Feb24’11. We expect the company to report a PAT of PKR 328mn (EPS: PKR 0.93) against PKR 708mn (EPS: 2.01), a decline of 54% YoY. Lower cotton prices along with general economic uncertainty, especially in core export destinations, is expected to weigh in on performance.
• NML’s top line is expected to go down to PKR 9.9bn, a decline of 12.6% YoY while sequentially it is expected to witness a 9% reduction. Margins are also expected to shrink in the face of declining cotton prices and higher energy costs.
• We expect the company to book dividends from MCB (PKR 3 per share) only in 2Q FY12 along with foreign exchange gains as PKR depreciated by an average of 3.5% in this period. We anticipate other income to clock in at PKR 358mn, down 73% QoQ.
• From Sep’11 till date, NML’s share price has increased by 17.3% against a 13.3% gain in the KSE 100 index. Our Jun12 Target price for NML is PKR 58 per share which implies a 15% upside from current levels. We believe going forward Textile margins will improve due to cheaper cotton procured by the company and export orders are also expected to witness an improvement in 3Q and 4Q FY12 as the global economic situation displays more robustness.
(IGI)
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NML : Core business to improve in 2Q – EPS at Rs2.71
We preview Nishat Mills Limited’s (NML) 1HFY12 result which is scheduled to be announced on February 24, 2012. We anticipate company’s earnings to decline marginally by 4%YoY to Rs2.0bn (EPS: Rs5.65). Main reason for the decline in earnings is due to the poor core business performance amid unstable cotton prices in 1Q and disposing off expensive leftover inventory from last year. We do not expect any payout with the result. The stock currently trades at FY12E and FY13F PEs of 4.1x and 3.9x and we have a ‘Hold’ call on the stock.
Sequential core earnings to improve
After a dismal 1Q, we expect NML’s core earnings to improve in 2QFY12 as all of the left over expensive inventory of previous year was disposed off in 1Q. As a result, we foresee company’s gross margins to improve by 6ppts QoQ to 17% as revenues are expected to rise by 10%QoQ to Rs12.0bn. However absence of dividend income (other income down 74%QoQ) in 2Q from its power subsidiaries is likely to restrict the growth in the bottom line. 2Q earnings are anticipated to
be lower by 7%QoQ at Rs2.71 per share.
1HFY12 earnings preview
Despite an increase of 8%YoY in revenues, NML’s gross margins are likely to come under pressure in 1HFY12 amid expensive cotton inventories of last year and excessive usage of furnace oil and diesel due to gas shortages in the country. Consequently, gross margins are likely to be recorded at 14.0% down from 15.4% in 1HFY11. On a positive side, other income is expected to jump by 37%YoY to Rs1.7bn, complements of dividend income from power subsidiaries and
MCB. Nevertheless, earnings are likely to contract by 4%YoY in 1HFY12 to Rs5.65 per share.
Outlook
We foresee company’s core business to improve on a sequential basis going forward as no major fluctuations are expected in cotton prices from here on in our view. Furthermore, dividend expectation from Nishat Power and future listing of AES Lalpir can also act as a trigger for the stock. Currently, we have a ‘Hold’ call on the stock with a target price of Rs56. NML is currently trading at FY12E and FY13F PEs of 4.1x and 3.9x.
(JS)
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