Earnings Report /
Pakistan

AGP Limited: 4QCY19 Review — Highest gross margins since 4Q17

  • AGP posted 4QCY19 NPAT of PKR383mn (EPS: PKR1.37), up 51%yoy and 19%qoq. This takes CY19 EPS to PKR 5.17, up 20% yoy.

  • GMs clocked in at a high 60.3%, which are the highest reported gross margin since Dec’17.

  • AGP trades at a CY20f P/E and P/S of 14.6x / 3.7x respectively, and seems fairly priced at our Dec’20 TP of PKR100/sh.

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
13 March 2020

AGP posted 4QCY19 NPAT of PKR383mn (EPS: PKR1.37), up 51%yoy and 19%qoq, coming in higher than our projected EPS of PKR1.22. This takes CY19 NPAT to PKR1,446mn (EPS: PKR 5.17), up 20%yoy. The earnings beat comes on the back of significantly higher than expected sales during the quarter, which we attribute to likely full translation of June’19 CPI price hike and seasonal push towards volumes. AGP also announced a dividend of PKR2.0 alongside the results, which came in higher than our projected DPS of PKR1.25/sh. 

4QCY19 review highlights:

  • AGP reported 4Q19 sales of PKR1,682mn, up a strong 25%yoy (higher than expected), to take CY19 sales to PKR6,253mn, up 16%yoy. This likely led by both – seasonal growth in volumes and the full impact of the CPI-linked price hike announced in Jun’19. 
  • GMs clocked in at a high 60.3% vs. our expectations of 56.5% for 4Q. As per the management, higher sales allowed production efficiencies to drive up margins, while CPI price hike helped further support better translation to the bottom line. These are the highest reported gross margin since Dec’17.
  • Selling and distribution expenses rose 18%yoy in tandem with higher sales while finance costs rose 10%yoy, majorly due to higher interest rates. 
  • The effective tax rate (ETR) has risen to 24.5% in 4Q (vs. 18.4% in SPLY), taking CY19 ETR to 20.7% vs.15.4% in CY18.

This is a strong set of results by AGP, where rising margins lend confidence. We expect 1QCY20 results to be stronger in terms of sales particularly in light of the PKR appreciation during 4Q19. That said, subsequent volatility in the PKR may affect succeeding results in CY20. AGP trades at a CY20f P/E and P/S of 14.6x and 3.7x respectively, and seems fairly priced at our Dec’20 TP of PKR100/sh. That said, pharmaceuticals with higher respiratory/analgesics drugs and supplements (applies to AGP and SEARL) within their portfolio are likely to outperform peers in the coming quarters, in our view.