Earnings Report /
Pakistan

Avanceon Ltd: 2QCY22 review – Elevated exchange gains led to earnings beat

  • AVN has announced a consolidated NPAT of PKR532mn (EPS: PKR1.64 on new number of shares) for 2QCY22, up 120% YoY

  • Despite significant PKR devaluation; net sales have reduced by 11% YoY and 26% QoQ to PKR980mn

  • Other income has clocked in at PKR804mn, owing to elevated exchange gains, without which it would have incurred a loss

Intermarket Securities
29 August 2022

Avanceon Ltd (AVN) has announced a consolidated NPAT of PKR532mn (EPS: PKR1.64 on new number of shares) for 2QCY22, up 120% YoY and 57% QoQ.  Despite lower-than-expected margins and significant decline in revenues, higher exchange gains led to the major deviation from estimates, without which it would have incurred a loss.

2QCY22 Result Review:    

  • Despite significant PKR devaluation; net sales have reduced by 11% YoY and 26% QoQ to PKR980mn, this is may either be due to lower than expected realization of new orders or decline in total numbers of new orders.

  • Gross margin also took hit and reduced by 7.3ppt QoQ, though up 3.1ppt YoY to 27.5% in 2QCY22. Sequentially, declining GMs are majorly attributable to extensive planning in the initial stages of the orders. To note, the planning stage initially incurs more costs than revenues.

  • Other income has clocked in at PKR804mn vs. PKR180mn in 1QCY22, owing to elevated  exchange gains. We expected other income of PKR381mn in 2QCY22.

  • Among other line items i) finance cost has risen 10% YoY to PKR37mn ii) admin expenses elevated by 73% YoY and 81% QoQ to PKR401mn, and iii) despite the imposition of super tax, effective tax rate has clocked in at 11.9%, against our projected ETR of 20%, and 21.7% in 2QCY21.

AVN has reported a disappointing quarterly result mainly led by lower than expected topline and margins. Going forward in 2HCY22, the consolidated earnings of the company may likely deviate from expectations owing to lower-than-expected orders acquired at the start of CY22. Therefore, we look to revise our estimates and target price. We presently have a BUY stance on AVN with a TP of PKR176/sh, owing to substantial earnings growth prospects of Octopus upon the launching of new services in 1HCY23.