EFOODS will be declaring its 1HCY12 results on Jul 13'12. We forecast the company's bottomline to grow by 4.7x YoY to PkR1,015mn (EPS: PkR1.35) during the review period. For 2QCY12, we forecast NPAT to stand at PkR530mn (EPS: PkR0.70), which would represent a sequential growth of 9%. At current levels, we have a Neutral stance on the scrip which is trading at a slight premium to our Dec-end price target of PkR69.
1HCY12 earnings to grow 4.7xYoY: EFOODS is forecast to post an NPAT of PkR1,015mn (EPS: PkR1.35) in 1HCY12 which would represent an earnings growth of 4.7xYoY. Earnings growth will likely be driven by a 52%YoY expansion in topline to PkR20.8bn. Similarly, gross profits are forecast to grow by 68%YoY to PkR4.9bn where besides the revenue growth, improvement in GMs (+220bps YoY to 23.6%) will also contribute to the gross profit growth. Dairy Segment is expected to continue being the star performer where we estimate the segment's revenue to grow by 59%YoY to PkR19.6bn while operating margins are also expected to improve by 276bps YoY to 6.8%. On the other hand, Ice Cream segment revenue is estimated to fall by 7%YoY to PkR1.3bn, where an extended winter season coupled with frequent electricity outages are expected to hurt sales. .
2QCY12 EPS to stand at PkR0.70: We expect EFOODS to register a 9%QoQ growth in profitability to PkR530mn (EPS: PkR0.70) in 2QCY12, following a 15% increase in revenue and a 50bps improvement in gross margins. Besides the volumetric growth in sales, increase in milk prices by ~15% during the quarter is expected to augment Dairy segment revenues. Seasonal uptick in Ice Cream demand is also expected to bolster the Ice Cream segment revenues, however despite the uptick in sales, the segment is expected to record an operating loss of PkR103mn during 2QCY12.
Positives priced in for now: EFOODS has been the outperformer at the KSE with CYTD return of 224%. Furthermore, the scrip has rallied strongly in Jul'12TD (+12%), possibly on expectation of improved profitability in 2QCY12. However, we believe that positives for EFOODS are priced in for now and recommend a 'Hold' at current levels where the scrip is trading at a 5% premium to our Dec-end price target of PkR69. While we remain bullish on the long term prospects of EFOODS given the huge potential in the packaged milk industry, concerns emanate from the company's ability to raise further financing given the domestic banking sector’s heavy exposure to the Engro Group.
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