INSIGHT

November 11, 2013

Electricity

Target price Currentupside/(downside) Kapco reported its 1QFY14 earnings of PKR1.78bn (2% decline YoY), translating into Outstandingshares (m) EPSofPKR1.96.Netrevenuesofcompanyremainedflatdespite6%YoYreductionin MarketCap(PKRbn) avg load factor as generation stood at 1,684GWh in 1QFY14, compared to 1852GWh Freefloat in SPLY. Gross profit contracted by 16% in the said period, as the company initiated 3MAvg.dailyvaluetraded(PKRm) majoroverhaulof2gasturbinesand1steamturbine,raisingrepairandmaintainence 3MAvg.dailyvolume(m) costs significantly. Other operating income and financial charges both declined by 12MHigh 64%duringthequarter,duetorecentliquidityinjectioninenergychain,keepingboth 12MLow

KotAdduPowerCompanyLimited Higherplantupkeepcostscompressgrossprofit

KAPCOPA
Stockpriceas of8Nov

HOLD
60.6 61.6 1.7% 880 53.3 54% 18.9 0.4 68.3 45.8

Keyfinancials in PKR bn Atcurrentprice,thestockistradingatFY14EPEmultipleof7.1xandoffersattractive Yearend FY12A FY13A FY14F FY15F dividend yield of 13.2%, with marginal upside potential of 2% to our June14 TP of Netsales 100.50 97.71 126.84 135.26 61.6/share.WemaintainourHoldstanceonthestock. Costofsales 89.25 84.14 114.10 120.61
ToplineremainsflatYoY
Gross Profit Operatingprofit Top line of the company remained flat YoY during 1QFY14, inching up marginally by 1%. It was despite 9% reduction in average load factor during the period under review, which clocked in at Financingcosts 57% vizaviz 63% in SPLY. Notwithstanding improved liquidity position post previous cash injec NetProfit 11.25 18.42 9.78 6.07 13.56 18.90 8.00 7.35 8.35 7.50 29.1 7.3 2.1 12.4% 21% 12% 29% 37% 12.74 14.09 2.66 7.55 8.57 8.00 29.2 7.1 2.1 13.2% 3% 11% 29% 42% 14.66 15.15 2.71 8.34 9.47 9.00 29.1 6.4 2.1 14.9% 10% 13% 33% 19%

shorttermborrowingsandreceivablesfromWapdatamed.

6.90 6.90 Plantupkeepcostsdepressgrossprofits BVPS 26.9 P/Ex 8.8 Gross profit of Kapco faltered by 16% YoY during the period. It was mainly led by higher plant up 2.3 keep cost, which rose massively by 500% YoY from PKR94mn in 1QFY13 to PKR564mn in the pre P/BVx ceding quarter, compressing the gross profit of the company. The company initiated major over DividendYield 11.4% 7% haulingof2gasturbinesand1steamturbinewhichresultedinmassivesurgeinrepairandmainte Earnings growth 6% nancecosts.Theseoverhaulshavecontinuedinto2Qaswell,whichmightkeepthesecostsonthe ROA highersideinthisperiodaswell. ROE 26% Netdebt/Equity 109% Declineinotheroperatingincomecompensatedbyreductioninfinancialcharges

tion in the energy chain, reliance of Wapda on Kapco remained low. Higher generation on FO Keymatrics (96.2% in 1QFY14 vs. 90.6% during comparative period last year) was the main reason for slight EPS increaseintoplineofthecompany. DPS

TSLResearch

Other operating income, which primarily comprises of late payment charges from Wapda on ac count of delayed payments, shrank massively by 64% in 1QFY14. After the liquidity injection in June this year, overdue receivables of Kapco have come down significantly, which led to lower pe nal income from Wapda during the outgoing quarter. A similar trend was also observable in finan cial charges of the company, resulting from short term borrowings of the company, which also 70 came down as reliance on bank borrowings also came down post after availability of funds im 60 provedforthecompany.
50 40

Price performance
KAPCO Rel.KSE100

PKR mn Net Sales C ost of Sales Gross Profit Admin & gen expenses Other operating income Operating Profit Finance C ost Profit before tax Tax Profit after tax EPS DPS

1QFY13 29,430 26,255 3,175 110 1,792 4,857 2,266 2,591 837 1,754 1.99 -

1QFY14 29,801 27,147 2,654 159 650 3,146 806 2,340 614 1,726 1.96 -

YoY 1% 3% -16% 44% -64% -35% -64% -10% -27% -2% -2% n.m

4QFY13 26,424 22,316 4,108 144 1,515 5,479 3,071 2,408 709 1,699 1.93 4.50

QoQ
May13 Nov12

22% -35% 10% -57% -43% -74% -3% -13% 2% 2% n.m

HassaanBinGhafoor
Hasaan.ghafoor@taurus.com.pk Direct:+922135216403

HassanRaza
Hasaan@taurus.com.pk

DISCLAIMER: The above information and advice is given in good faith, without any legal responsibility. Taurus Securities Limited or individuals con nected with it may have used research material before publication and may have positions in or may be interested in the securities mentioned herein.

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INSIGHT
Aboutthecompany

TSL Research

The Kot Addu Power Company Limited (KAPCO) is Pakistans largest Independent Power Project (IPP)anditsprincipalactivitiesaretoown,operateandmaintainmultifuelfiredpowerstationwith grosscapacityof1,600MWatasiteinKotAddu,DistrictMuzaffargarhinthePunjabprovince.The companysuppliespowerexclusivelytoWAPDAundera25yearPowerPurchaseAgreement(PPA) extendingupto2021.ThecompanyhasanexclusiveagreementforsupplyoffurnaceoilwithPaki stan State Oil (PSO). The shares of the company are listed on the Karachi, Lahore & Islamabad StockExchanges.

TaurusresearchisavailableonBloombergunderTAUR