Avanceon Ltd (AVN) has posted consolidated NPAT of PKR0.96bn (EPS: PKR3.69) for 4QCY21, up 220% yoy and 6.2x qoq. The result came in much higher than our expected EPS of PKR2.96 for 4Q. Major deviation came from (i) higher than expected GMs, and (ii) higher other income amid better exchange gains. This takes CY21 NPAT to PKR1.60bn (EPS: PKR6.16), up 53% yoy. The company announced a cash dividend of PKR1.0/sh and 25% bonus shares also vs. our expected DPS and bonus of PKR1.0 and 20%.
Key highlights for 4QCY21 results:
Net sales rose by 25% yoy and 189% qoq to PKR3.52bn, vs. our expected topline of PKR3.54bn. Higher revenue is mainly led by revenue recognition on the order pipeline acquired at the start of the year. These orders were expected to be completed in 4Q, as most of AVN’s orders last about 9-12 months and the company realizes revenue according to the percentage completion method. AVN typically realizes the bulk of the orders in the last two quarters of the year.
Gross margins increased by 5.3ppt yoy and 8.9ppt qoq to 34.9%, higher than our assumed GMs of 30%. The jump in GMs is majorly due to greater services being provided in the last quarter vs. more planning and understanding in the initial stages of the orders.
Other income has jumped to PKR175mn vs. PKR98mn in 3QCY21, where the qoq increase mainly emanates from exchange gains as PKR depreciated by c.3% vs. the US$ during 4Q. About 70% of the company’s revenues are exports.
Among other line items (i) finance cost rose by 9% yoy to PKR39mn, (ii) admin expenses jumped by 78% to PKR353mn, (majorly due to the higher expense being booked by subsidiary Octopus in 4Q and easing of travel restrictions), and (iii) effective tax rate clocked in at 4.9% vs. 30.5% in 4QCY20; this was due to one-off impact.
AVN has posted strong earnings in 4QCY21, mainly led by the realization of new orders booked at the start of the year. The management also guided that the company has backlog revenue orders of US$53mn for CY21 against actual realization of US$43.6mn in CY21. We believe that higher acquisition of orders from the Middle East backed by higher oil and commodity prices, coupled with more spending on overall infrastructure, will help AVN to achieve higher topline and earnings growth in CY22f and beyond. We reiterate our liking on the scrip with a TP of PKR232/sh.