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.