Kot Addu Power Company Limited 1st Quarter Result Review

Research - Arif Habib Limited

KAPCO posted EPS of PKR 4.92 in 1HFY16, down 10% YoY

Kot Addu Power Company Limited recently announced its 1HFY16 results, where the company posted profit after tax (PAT) of PKR 4,331mn (EPS: PKR 4.92), down 10% YoY. Major reasons for this decline are lower furnace oil prices, shrunk generation and a reduction in other income amid lower penal income from overdue receivables. On sequential basis, the company recorded earnings of PKR 2,224mn (EPS: PKR 2.53), up 6% QoQ. Along with the results, the company announced its first interim cash dividend of PKR 4.25/share for the year.

Result Highlights

• Topline during 1HFY16 plunged by 41% to PKR 34bn mainly due to 49% YoY decline in FO prices along with lower generation during the period.
• Gross margins clocked in at 18.4% during 1HFY16 (a jump of 560bps), compared to 12.8% in the same period last year amid 2.7% depreciation of PKR against the greenback.
• While other income declined by 49% YoY during 1HFY16 amid lower penal income on overdue receivables from WAPDA.
• The financial charges dropped by a massive 58% YoY due to lower reliance on short term borrowings amid lower FO cost along with improved receivable days.

Recommendation

We flag “HOLD” stance on the company with our Dec’16 DDM based target price of PKR 65.0/share, offering a total return of -3.0%. However, extension of the company’s power purchase agreement (PPA) which is set to expire in 2021, would significantly change our stance and target price for the company.