IGI Securities Limited – Flash Note (19-09-2019)

Karachi, September 17, 2019 (PPI-OT): Kot Addu Power Company Limited – Likely reversal of true up income and lower margin drags 4QFY19 EPS down to PKR 0.74; Surprise dividend of PKR 3.0/share

Kot Addu Power Company Limited (KAPCO) announced financial results for 4QFY19 with earnings clocking in at PKR 0.65bn (EPS PKR 0.74) down by 84%YoY compared to PKR 4.01bn (EPS PKR 4.56) in the same period last year. On a sequential basis, earnings are down by 81%QoQ during 4QFY19. This brings total profitability to PKR 13.11bn (EPS PKR 14.90) for FY19, up by +24%YoY, compared to PKR 10.62bn (EPS PKR 12.06) in the corresponding period last year.

The Company announced cash dividend of PKR 3.0/share for 4QFY19 bringing total cash payout for FY19 to PKR 4.5/share.

We attribute this decline in earnings during 4QFY19 primarily on the back of a) lower gross margins of 11.21%, b) non-operating loss likely owing to reversal of true up income, and c) higher finance cost owing to rise in interest rate and short term borrowings.

Net Revenues dropped by 2%YoY to PKR 29.85bn during 4QFY19, likely on the back of lower generation with a total load factor of 67% against 84% in the same period last year. This brings total revenues for FY19 to PKR 84.83bn down by 8%YoY likely owing to lower generation.

Gross margins clocked in at 11.21% during 4QFY19 compared to 11.73% in the same period last year as most of the generation was gas/RLNG. As a result total gross margins stood at 16.75% for FY19 compared to 14.56% in FY18 owing to PKR depreciation.

The Company reported non-operating loss of PKR 0.28bn during 4QFY19 likely owing to reversal of true up income leading to total other income of PKR 13.78bn for FY19, up by +46%YoY. Reversal of true up income is likely owing to changes in accounting policy and will likely be recorded once payments are received.

Finance cost increased by +19%YoY to PKR 1.78bn during 4QFY19 likely owing to rise in mark up amid rise in interest rates and short term borrowings.

Effective tax stood at 41.7% during 4QFY19 compared to 36.7% (3QFY19: 31.2%) reported in the corresponding period last year bringing total effective tax rate to 30.9% compared to 32.8% in the same period last year.

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