FLASHNEWS:

AKD Securities Limited – AKD Daily (24-06-2021)

Karachi, June 24, 2021 (PPI-OT): EPCL: Margins upcycle continue amid expansion

We revisit our investment case on Engro Polymer Chemicals Ltd (EPCL), incorporating higher than expected PVC ethylene margins in 2QCY21. Our annual margin assumptions now stand at US$740/MT for CY21 vs. US$670/MT assumed earlier.

For 2QCY21 PVC ethylene margins clocked in at ~US$1,000/MT, up 19% QoQ on the back of persistent PVC supply disruption and soft ethylene prices. The confluence of multi-year high margins and PVC Line III commissioning in 1QCY21 should continue upward momentum in earnings.

Near term triggers include: (i) VCM debottlenecking to unlock 50K MT in 2QCY21 and (ii) HTDC reducing gas consumption by 10% in PVC manufacturing CY22F onwards.

A delay in gas price hike (incorporated 15% hike in 2HCY21) and/or higher than expected PVC ethylene margins are potential upside risks.

Our revised earnings of PkR13.05/8.43 per share for CY21/22F imply EPCL trading at undemanding P/E of 3.6x/5.6x. The scrip offers an upside of 56.2% at our TP of PkR74/sh at last close – Buy!