NML and NCL: 1HFY15 Result Previews
Nishat Mills limited (NML) and Nishat Chunian Limited (NCL) are scheduled to announce their 2QFY15 results tomorrow. We expect NML to post net earnings of PkR1.28bn (EPS: PkR3.64) in 2QFY15 vs. NPAT of PkR2.28bn (EPS: PkR6.49) in 2QFY14, down by 44%YoY. Due to subdued top-line (down by 5.1%YoY) on low demand and costs pressures expected to be on the higher side, we anticipate GMs to come off by 520bps to 13.6% in 2QFY15. However, support to the bottom-line is expected to come from "other income" (up by 1.7%YoY), as associate companies continue to maintain a strong dividend payout. Subsequently, 1HFY15 earnings for NML are expected to clock in at PkR1.68bn (EPS: PkR4.77), down by 56%YoY. We expect NCL to post a bottom-line of PkR0.40bn (EPS: PkR1.98) in 2QFY15 vs. NPAT of PkR1.04bn (EPS: PkR5.21) in 2QFY14, down by 62%YoY. Downturn in international demand is expected to keep top-line under pressure, where we anticipate a meager sales growth of 1%YoY in 2QFY15. This along with 2%YoY growth in costs is expected to shrink GMs by 130bps to 7.9% in 2QFY15. Weaker core operations are expected to be veiled by dividends from the subsidiary company on both YoY and QoQ basis. This will take NCL’s 1HFY15 earnings down by a massive 87%YoY to PkR0.16bn (EPS: PkR0.79). On the back of absence of positives in the textile policy, accompanied with lower international demand and weakness in cotton prices, the textile sector has underperformed the broader market by 1.4% CYTD. We continue our preference for NML (TP of PkR172.1/sh) over NCL supported by its larger proportion of value added goods in its sales mix and a well-diversified portfolio.
NML - Other income to aid ailing core operations: We expect NML to post net earnings of PkR1.28bn (EPS: PkR3.64) in 2QFY15 vs. NPAT of PkR2.28bn (EPS: PkR6.49) in 2QFY14, drastically down by 44%YoY. While top-line of the company is expected to remain subdued on account of tepid demand, higher inventory buildups might keep costs pressures on the higher side (up by 1.1%YoY). Consequently, we anticipate GMs to come off by 520bps to 13.6% in 2QFY15 vs. 18.8% in 2QF14. However, support to the bottom-line is expected to come from "other income" (up by 1.7%YoY), as associate companies continue to maintain a strong dividend payout. On a QoQ basis, earnings are expected to recover by 220%, primarily driven by the recognition of the dividends and a slight improvement on the core operational front. Subsequently, 1HFY15 earnings are expected to clock in at PkR1.68bn (EPS: PkR4.77) vs. NPAT of PkR3.85bn (EPS: PkR10.96) in 1HFY14, down by 56%YoY. While 1HFY15 is expected to be disappointing, we believe 2HFY15 should be better particularly on account of purchasing inventory at lower rates.
NCL - Core operation might continue to falter! We expect NCL to post a NPAT of PkR0.40bn (EPS: PkR1.98) in 2QFY15 vs. NPAT of PkR1.04bn (EPS: PkR5.21) in 2QFY14, massively down by 62%YoY. Downturn in international demand primarily led by China is expected to continue exerting pressure on the spinner's top-line, where we anticipate a meager sales growth of 1%YoY in 2QFY15 to PkR5.48bn. This along with 2%YoY growth in costs is expected to shrink GMs by 130bps to 7.9% in 2QFY15 from 9.2% in 2QFY14. While core operations are expected to remain weak, dividends from the subsidiary Nishat Chunian Power (NCPL) are expected to provide some respite to the bottom-line, both on YoY and QoQ basis. In this regard, non-core EPS of the company is anticipated to clock in at PkR2.96/share. This will take 1HFY15 earnings down by a massive 87%YoY to PkR0.16bn (EPS: PkR0.79) vs. earnings of PkR1.27bn (EPS: PkR6.33) in 1HFY14.
