Earnings Report /
Pakistan

Avanceon Ltd: 2QCY22 preview – Despite elevated tax, earnings will rise amid devaluation

  • AVN is expected to announce a consolidated NPAT of PKR420mn (EPS: PKR1.64) for 2QCY22, up 74% YoY and 24% QoQ.

  • Net sales are expected to rise 32%YoY /10% QoQ to PKR1.5bn. majorly due to acquisition of new orders & PKR devaluation.

  • Other income is expected to clock in at PKR381mn vs. PKR180mn in 1Q22, amid higher Fx gains as PKR depreciated c.9% QoQ.

Intermarket Securities
26 August 2022

Avanceon Ltd (AVN) is expected to announce a consolidated NPAT of PKR420mn (EPS: PKR1.64) for 2QCY22, up 74% YoY and 24% QoQ. Key expectations behind the jump in earnings are i) realization of revenue from orders initially acquired at the start of the year, coupled with PKR devaluation, and ii) exchange gains. However, topline is expected to increase in 2HCY22 as major portion of services tend to be rendered in later stage of the order cycle. This is due to i) most of AVN’s orders last about 12-15 months, and ii) company realizes revenues according to percentage of completion method.

Key expectations for 2QCY22 results:         

  • Net sales are expected to rise 32% YoY and 10% QoQ to PKR1.5bn. The jump is majorly attributed to acquisition of new orders and PKR devaluation.

  • We expect gross margin to increase by 8.8ppt YoY to 33.2%. Sequentially, the decline in GMs is majorly due to extensive planning in the initial stages of the orders. To note, the planning stage initial incurs more costs than revenues.

  • Other income is expected to clock in at PKR381mn vs. PKR180mn in 1QCY22, where the increase  is likely to emanate from higher Fx gains as PKR depreciated c.9% QoQ.

  • Among other line items i) finance cost is projected to rise 48% YoY to PKR49mn ii) admin expenses will increase by 5% YoY to PKR243mn, and iii) effective tax rate is likely to clock in at 20% vs 4.1% in 1QCY22 amid one-off super tax impact.

Despite higher tax rate, AVN is likely to post relatively better earnings in 2QCY22, led by acquisition of new orders and USD appreciation. Going forward, the consolidated earnings of the company are expected to rise sharply as Octopus’ new services become fully operational. We reiterate our BUY stance on AVN with a TP of PKR176/sh.