PKGS: 1Q2017 EPS of Rs16.6; -17% YoY; (Below expectations)
Wednesday, 19 April 2017
By: Topline Securities (Private) Limited
Packages Limited (PKGS) announced 1Q2017 consolidated earnings (attributable to equity holders) of Rs 16.6/share, down 17% YoY. Contraction in earnings is mainly due to flat sales and lower gross margins during the quarter. The announced result stood below our expectations.
Net Revenues remained flat at Rs6.4bn, up 1% YoY during 1Q2017. This is attributable to increased fragmentation within the packaging industry where higher price discounts to costumers subdued growth. Cost of sales posted an increase of 7% YoY due to pressure generated from input cost hike, we believe. Gross margins contracted by 4ppt to 22% in 1Q2017.
Investment income of the company registered an increase of 13% YoY to Rs1.4bn, primarily due to higher dividend from NESTLE during the period. The company normally receives dividend income from related parties including NESTLE, Tetra-Pak and Coca Cola etc.
Profit from operations decreased by 41% YoY due to increase in operating expenses, as distribution and admin costs witnessed a surge of 9% YoY and 10% YoY, respectively.
The company recorded a lower profit of Rs37mn in 1Q2017 from its investments in associated companies and Joint Venture (JV) versus a profit of Rs237mn in 1Q2016, which restricted the bottom line. Moreover, 26% YoY surge in finance costs, backed by increased debt financing, further kept bottom-line in check.
We maintain our ‘Buy’ stance on PKGS, which is currently trading at 2017E PE of 13.2x.
1) issues with operations of biomass boiler plant
2) decline in investment income and
3) higher than expected fuel & energy costs as key risks for PKGS.
FINANCIAL RESULT FOR THE HALF YEAR ENDED 30/06/2017
(UNCONSOLIDATED) PROFIT/LOSS BEFORE TAXATION RS. IN MILLION 3,844.147
(UNCONSOLIDATED) PROFIT/LOSS AFTER TAXATION RS. IN MILLION 3,120.134
(UNCONSOLIDATED) EPS = 34.41
(CONSOLIDATED) PROFIT/LOSS BEFORE TAXATION RS. IN MILLION 4,121.973
(CONSOLIDATED) PROFIT/LOSS AFTER TAXATION RS. IN MILLION 3,232.490
(CONSOLIDATED) EPS = 34.63