Karachi, October 12, 2022 (PPI-OT): EPCL and SYS: 3QCY22 Result Previews

EPCL to post 3QCY22 EPS of PkR1.90: Engro Polymer and Chemicals Ltd (EPCL) is slated to announce its 3QCY22 result today, where we expect the company to post 3QCY22 NPAT of PkR1.7bn (EPS: PkR1.90), as compared to PkR3.2bn (EPS: PkR3.43) in the same period last year. For the outgoing quarter, we expect PVC offtakes to decline by 14%QoQ due to the slowdown in construction activity amidst severe monsoon and devastating floods (cement sales, down 25%QoQ in 1QFY23). Hence, in our estimates, we have assumed PVC sales of 51K MT for 3QCY22, down 14%QoQ while PVC – Ethylene margins for 3QCY22 average at US$500/MT, down 34%QoQ.

The prices of both ethylene and PVC have weakened sharply due to volatility in oil markets and a slowdown in economic activity globally, especially in the construction sector in China after the country adopted a zero covid-19 policy. As a result, our estimate for the gross margin remains on the lower side at 26.8% vs 33.8% in 2QCY22. To highlight, global PVC prices declined by 28/25% QoQ/YoY to hover around US$870/ton while Ethylene prices declined by 21/1% QoQ/YoY to hover around US$905/ton. We also foresee elevated finance cost (+57%YoY) due to higher interest rates and other income of PkR430mn, up 14.3%YoY. Finally, we expect EPCL to announce a cash dividend of PkR1.80/sh.

SYS – Expected EPS of PkR7.8 in 3QCY22: We expect Systems Limited (SYS) to post NPAT of PkR2.2bn in 3QCY22, up 116%YoY and increasing by 23%QoQ. Revenue for 3QCY22 is expected to clock in at PkR7.2bn (+80%YoY) owing to hefty Rupee depreciation along with growth in operations. The company has been expanding in new regions which are expected to start bearing fruit in this quarter, as revenue will likely be up by 17%QoQ. The company posted strong gross margins of 33.5% in 2QCY22, which we expect to rise to 34.3% owing to the local currency depreciation (~85% of revenue is in foreign currencies, while ~76% of costs are in PkR).

Despite exuberant bench-building in CY21, the company has been able to sustain revenue at US$30k/employee, as the increase employee count has fueled organic growth. We expect substantial exchange gains of PkR415mn (PkR1.5/sh), with the currency depreciating by 8% as of 30’Sep, bringing other income to PkR697mn. Systems may record a gain on the revaluation for Retailistan, with its product Jugnu raising US$22.5mn in funding. Moreover, if NdcTech is consolidated into System’s accounts, it may boost revenue by 10-15% according to management.