Morning Call about – Bottom line out of the red after 7 quarters – Arif Habib Limited

Karachi, March 04, 2013 (PPI-OT): LDI revenues jacking up the gross margins  As  earnings  and  top-line  increase  have  been  witnessed  across  the  board  in  telecom companies on account of ICH-level rates being charged on int’l incoming  calls, Telecard (with a market share of 3.3%) has been another beneficiary in this  regard.

According to Arif Habib limited the company released its 1HFY13 accounts recently, where the company  posted a PAT of PKR 155mn with an EPS of 0.52 in the 2QFY13, profitability in the  bottom-line has been witnessed after seven financial quarters. Top-line witnessed a  55% QoQ jump to PKR 599mn in 2QFY13 from PKR 385mn in 1QFY13, whereas  on 1HFY13 a PAT of PKR 9mn and EPS of 0.03 were posted. As mentioned before  this is mainly attributed to their higher Long Distance Int’l (LDI) revenues segment  that accounts now for 80% of their total revenue mix.

Gross margins showed astonishing improvement!

The  company’s  cost  of  sales  registered  a  massive  51%  QoQ  decline  from  PKR  486mn to PKR 226mn as it managed to cut down cost of service, which in turn has  massively improved gross profit margins to 62% in 2QFY13 compared to negative  gross margins reported in 1QFY13.

Other income providing further support

Other operating income saw an increase from PKR 8mn to PKR 21mn as dividend  income was realized from the company’s subsidiary ‘Supernet’. In addition to this,  and a modest increase in TELE’s professional service segment further augmented  the other income during the quarter under review.

Financial Highlights (PKR mn)1QFY132QFY13QoQ1HYFY121HYFY13
Net Sales

386

599

55%

622

985

Gross Profit/(Loss)

(77)

373

nm

(126)

297

GP Margin

-20%

62%

-20%

30%

Other Income

8

21

162%

16

29

Finance Cost

69

70

0%

(140)

(139)

Profit/(Loss) after tax

(146)

155

nm

(292)

9

EPS/(LPS)

(0.49)

0.52

nm

(0.97)

0.03

Source Company Financials & Arif Habib Research

What Arif Habib limited could expect going forward for LDI traffic and Telecard?

Arif Habib Limited  preliminaries  estimates  are  based  upon  average  total  monthly  int’l  minutes  of  750mn since Jan’13. However, Arif Habib Limited  industries channels suggest they could see a 5- 6% increase with grey traffic to be further curbed as various measures are being  taking place by PTA to control this illegal flow of int’l traffic. This will prompt more  foreign operators to opt legal channel, which will further boost the incoming traffic  going  forward.

Telecard’s  earning  could  further  be  supported  as  the  company’s  management look to improve  the  cost  efficiencies  and  profitability from their  loss  making non-LDI revenue segment. Although TELE is not in Arif Habib Limited  officials coverage of  companies, Arif Habib limited foresees the company to maintain stable earnings of 2QFY13 going  forward.  Arif Habib limited  expects  the  company  to  earn  an  EPS  of  PKR  ~1.00  (FY13)  with  a  current PE 6.9x based on its forecasted FY13 EPS.

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