Result Previews: ENGRO, DGKC & AICL (28102008)

NGRO to post 26 percent growth
Engro Chemicals is schedule to announce its 3Q result on Monday; we expect that the company will post the 9M EPS of Rs 10.14 and after tax profit of Rs2,004.28 million, showing the growth of 26 percent YoY. However for 3Q08, company is expected to post the profit after tax of Rs448 million and EPS of Rs2.10.
65 percent upside potential
Our target price for ENGRO is Rs300 for medium to long term considering the expected FY08 EPS of Rs19 and PAT of Rs5.17 billion. The scrip is currently trading at discount multiples of 9.53 and counts an upside potential of 65 percent.
Urea sales remained aggressive while DAP sales remained
depressive
During 8M08, Engro's urea off-takes increased by 36 percent to 730.3k tones while imported DAP sales declined by 81.5 percent to 36.8k tones. The reason behind this scenario was the substitution affect due to high prices of DAP and other phosphate products, which led down the DAP demand and increased the urea sales.
DGKC expected to post loss
DGKC is scheduled to announce its 1Q09 results on Monday, we expect that the company would post lost after tax of Rs152mn converting into LPS of Rs0.60 reflecting a massive decline of 157 percent as compared to same period last year. The anticipated negative bottom-line growth is attributable to exchange losses (due to massive rupee depreciation), higher distribution costs and increased financial charges.
Massive increase in retention prices leads to better gross
margins
Net sales of the company is projected to increase by 69 percent to Rs3.7bn over Rs2.2bn in 1Q08 mainly due to high retention prices on the local and export front. Therefore the gross margin of the company is likely to recover by 10 pps to 27 percent.
Weak rupee contribute to huge losses
However, 15 percent depreciation of Pak Rupee against the US$ during Sep 08 is expected to result in exchange losses on US$ based loans as the company is likely to book a huge exchange loss of 542mn in its 1Q09 result. Rupee weakness will also boost cost of imported coal which is not completely offset by exports as DGKC has low export share in its total revenue.
Distribution cost and financial charges will remain high
Company is also going to register a huge selling and distribution expense of Rs301mn as against Rs46mn in FY07, depicting a increase of 5.54x due to high transportation charges on export. On the other hand, 12 percent higher financial charges are also likely to put pressure on the bottom line of the company.
Result Preview: Adamjee Insurance
Co. Ltd
AICL is scheduled to announce its 9M08 financial result on Monday, it is expected to post 9m earnings of Rs30.33 per share with after tax profit of Rs3,3100 billion depicting a growth of 101% YoY, primarily on the basis of gain on investments.
Capital gains to sustain depression in Core Income…
The substantial part of the earning are contributed by the capital gains from sale of MCB holding to May Bank in the second quarter. The MCB deal stroked the investment income by 120% YoY to 3.226 billion. Going forward the future of investment income remains bleak due to the situation in equity market, as AICL is heavily invested.
Claim ratio to dampen Core Income…
The core income is expected to remain depressed and depict a decline of 93% YoY. As the claim ratio remains on the higher side (71%) mainly due to losses in the first quarter (87%).
Lower multiples make AICL vibrant
AICL target price Rs244, which equates to a total potential return of 30%. AICL is trading on 5.2x P.E, 1.82x PBV, with RoE of 35%, on our CY08 estimates.