Earnings Report /
Pakistan

Avanceon Ltd: 3QCY22 Review - Earnings supported by exchange gains

  • AVN has announced a consolidated NPAT of PKR861mn (EPS: PKR2.65) for 3QCY22, up 8.7x YoY and 62% QoQ.

  • Gross Margin has declined by 3.0/4.5ppt YoY/QoQ to 23.1% (IMS estimate of 29%).

  • Other income clocked in at PKR848mn as compared with PKR804mn in 2Q, came in higher than our expectation of PKR505mn.

Intermarket Securities
28 October 2022

Avanceon Ltd (AVN) has announced a consolidated NPAT of PKR861mn (EPS: PKR2.65) for 3QCY22, up 8.7x YoY and 62% QoQ. The result came in higher than our expected EPS of PKR2.12. Higher-than-expected other income lead to the deviation.

Key highlights for 3QCY22 results:         

  • Net sales have more than doubled QoQ and are up 89% YoY to PKR2.3bn versus our expectation of PKR2.1bn. The jump in revenue is majorly attributed to greater-than-expected completion of orders.

  • Gross Margin has declined by 3.0/4.5ppt YoY/QoQ to 23.1% (IMS estimate of 29%). This can be due to higher realization of costs and lower realization of revenues on services rendered in 3Q.

  • Other income has clocked in at PKR848mn as compared with PKR804mn in 2QCY22. This came in higher than our expectation of PKR505mn. This is the major reason of the deviation and is likely caused by exchange gains.  

  • Among other line items i) finance cost has risen by 110% YoY to PKR66mn ii) admin expenses increased to PKR403mn, up 106% YoY, and iii) the company has booked a tax reversal in 3Q, versus an effective tax rate of 14.8% in 3QFY21.

AVN has posted relatively weak margins and operating profitability during the quarter, offsetting higher revenues. Going forward, core earnings will likely remain range bound amid lower order inflow, in our view. However, the consolidated earnings (including OCTOPUS) of the company are expected to rise sharply, as Octopus’ new services become fully operational. We presently have a BUY stance on AVN with a TP of PKR176/sh. However, we will look to revisit our estimates given the lower-than-expected growth than initially assumed in the core business.