September 06, 2011

Pakistan Market JS Research 3

MORNING BRIEFING
KSE100 Index: Closing 11,162.39 (91.81)
on account of effective treasury management. In addition to investments in treasuries, interest income and dividend income from Ufone is anticipated to add to the non-core income. As a result, the companys bottomlime is expected to decline by 31%YoY to Rs6.4bn (EPS of Rs1.26) in FY11 vs. Rs9.3bn (EPS of Rs1.82) in FY10. We do not expect a cash payout in 4Q as the company has already announced a DPS of Rs1.75 with its 9MFY11 results In 4Q alone, we anticipate earnings to clock in at Rs139mn (diluted EPS of Rs0.32) compared to a loss of Rs15mn (diluted loss per share of Rs0.03) in the preceding quarter. The turnaround in profits is largely driven by an average increase of 8%YoY in retention prices. However, higher incidence of taxation on account of deferred taxation and flood surcharge are likely to keep profitability under check. At current levels, we maintain our Hold stance on the scrip.

DGKC and PTCL results preview

DG Khan Cement (DGKC) and Pakistan Telecoms (PTCL) boards of directors are scheduled to meet on September 7, 2011 to report their respective FY11 results. We expect DGKC earnings to rise by 36%YoY to Rs316mn (diluted EPS of Rs0.72), while PTCLs profits are likely to dip by 31%YoY to Rs6.4bn (EPS of Rs1.26). At current levels, we maintain our Hold call on DGKC, while recommend a Buy on PTCL.

DGKC: FY11 diluted EPS expected at Rs0.72

We expect DGKC to report earnings of Rs316mn (diluted EPS of Rs0.72) for FY11 vs. profits of Rs233mn (diluted EPS of Rs0.53) in FY10, an increase of 36%YoY. The growth in profitability is largely driven by improved margins, which are likely to jump to 23.8% in FY11 compared to 16.6% in FY10. This improvement is expected on the back of an average rise in retention prices by 35%YoY as opposed to a 24%YoY increase in COGS/ton. However, selling and distribution expenses are likely to jump by 124%YoY owing to higher freight costs on its export sales.
DGKC: FY11 earning estimates (Rs mn) Net Sales Cost of Sales Gross profit Gross margin Admin. exps. S&D exps. Other exps. Other income Oper. profit Finance cost PBT Taxation PAT Diluted EPS FY11E 18,504 14,100 4,405 24% 202 2,224 103 1,013 2,888 2,090 798 482 316 0.72 FY10A 16,275 13,570 2,705 17% 172 994 189 912 2,261 1,903 358 125 233 0.53 17% 124% -45% 11% 28% 10% 123% 284% 36% 36% % 14% 4% 63% 4Q11E 3Q11A QoQ% 5,426 3,968 1,458 27% 53 701 30 235 909 535 374 236 139 0.32 4,904 3,643 1,261 26% 51 754 24 232 664 539 125 140 (15) (0.03) -7% 58% 50% -25% 14% 1% 37% 129% -19% -19% 17% 9% 45%

atif.zafar@js.com With the recent decline in PTCLs stock price, the scrip offers 92 (21) 111-574-111 (ext. 3118) an impressive dividend yield of 14.8% for FY12F and hence we reiterate our Buy stance on it. The scrip currently trades PTCL: FY11 earnings likely at Rs1.26/share at an FY12F PE of 7.6x. Declining fixed line revenues have been a drag on the overall furqan.ayub@js.com unconsolidated topline of the company, as CAGR of total 92 (21) 111-574-111 (ext. 3103) revenues during 2007-2010 stands at a dismal -4.32%. In line with the historical decline, we expect the revenues to dip by 5%YoY to Rs54.4bn in FY11. However, growth in broadband segment and value added services are likely to compensate for the stagnation in the fixed line segment. On the cost side, operating costs are likely to augment by 5%YoY due to higher salary costs, and increase in selling and marketing expenses as the company is aggressively advertising its value added services.
PTCL: FY 11 Result Preview (Rs mn) Revenue Operating Costs Operating Profit Operating Margin Other Operating Income PBT Taxation PAT EPS FY11E 54,359 49,834 4,525 8.3% 5,630 9,899 3,465 6,434 1.26 FY10A 57,175 47,625 9,550 16.7% 5,135 14,281 4,987 9,294 1.82 % -5% 5% -53% -838bps 10% -31% -31% -31% -31%
Pakistan Te lecommunication Company Market Price: Rs11.47 Market Cap: Rs43.3bn (US$495.3mn) 1-yrs Avg. Daily Volume : 1.7mnshares, Rs29.4mn (US$0.3mn) 1-year High/Low : Rs20.24/10.56 Kats Code: PTC Bloomberg Code: PTC PA Reuters Code: PTCA.KA

DG Khan Cement Company Market Price: Rs20.11 Market Cap: Rs8.8bn (US$100.8mn) 1-yrs Avg. Daily Volume: 3.1mn shares, Rs83.7mn (US $1.0mn) 1-year High/Low : Rs31.87/19.27 Kats Code: DGKC Bloomberg Code: DGKC PA Reuters Code: DGKH.KA

Source: JS Research & Company accounts

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Source: JS Research & Company accounts

Other operating income is expected to provide the required cushion to the bottomline with an increase of 10%YoY mainly

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