Earnings Report /
Pakistan

Kohinoor Textile Mills: 4QFY21 review – earnings beat due to lower-than-expected Opex

  • KTML posted an unconsolidated EPS of PKR3.56 in 4Q, beating our expectations amid lower Opex, and a final DPS of PKR1.0

  • GMs remained flattish qoq, where higher Spinning margins may have been offset by lower Home Textile margins, in our view

  • We reiterate our Buy stance on KTML with a June 2022 TP of PKR145/sh

Intermarket Securities
16 August 2021

Kohinoor Textile Mills Ltd (KTML) has reported an unconsolidated NPAT of PKR1.1bn for 4QFY21 (EPS: PKR3.56), up 56% qoq and a big jump from an EPS of PKR0.19 in SPLY. This takes FY21 NPAT to PKR2.8bn (EPS: PKR9.21). The 4Q result is better than our expected EPS of PKR2.30, where the deviation stems from lower-than-expected Opex. KTML announced a final DPS of PKR1.0/sh, against our expectation of PKR2.0/sh, taking FY21 payout to PKR2.0/sh.

Key highlights from 4QFY21 result:

  • Revenue has clocked in at PKR8.3bn, up c.10% qoq, broadly in line with our expectation, where we suspect higher sales of the Spinning (both local and export sales of yarn) and Home Textile segments. Recall that Pakistan's exports grew c.5% qoq, despite the reduced working hours due to Ramadan. We highlight that the Spinning segment contributed c.50% of KTML's revenue in 3Q (likely same in 4Q).

  • Gross margins remained flattish qoq at c.22%, broadly in line with our expectations. This can be attributed to a sequential decline in Home Textile margins amid rising input costs, where we highlight a c.2% qoq rise in global cotton prices. We expect that margins in the Home Textile segment will improve in the coming quarters, due to increase in US$ selling prices and recent PKR/USD depreciation.

  • Distribution/Admin expenses are down 8%/3% qoq. The decrease, despite an increase in sales, may be due to lower freight and commission costs, in our view. We await annual accounts for further clarity.

  • Finance costs declined 7% qoq to PKR156mn, likely due to improved receivable collection and higher revenues, resulting in a decline in borrowings, in our view. Effective tax rate clocked in at 13% compared with 26% last quarter, potentially due to an increase in exports-to-sales ratio. ETR in FY21 clocked in at 19%. 

This is a strong result from KTML, where we expect the robust sales momentum to continue into FY22, on the back of strong orders backlog and cotton inventory until 3QFY22. Margins are likely to improve amid pass-on of input costs to consumers, as cotton prices now hover close to US¢100/lb (up 46% yoy). Upon the approval of the highly anticipated Textile Policy, the present growth momentum is likely to sustain, in our view, where the US-China trade rift, resurgence of Covid-19 cases in competing countries and gradual lifting of restrictions in the West also improve prospects for Pakistan's textile exports.

We, therefore, reiterate our Buy stance on KTML (June 2022 TP of PKR145/sh).