Earnings Report /
Pakistan

Al Ghazi Tractors: 4QCY19 results review: Worse than expected; Sell

    Intermarket Securities
    14 February 2020

    Al-Ghazi Tractors (AGTL) reported 4QCY19 Net loss of PKR311mn (LPS: 5.37), compared to a profit of PKR343mn same period last year and PKR327mn in 3Q19. This is significantly lower than our expected EPS of PKR1.14. Major surprise was a gross loss of PKR130mn potentially on high fixed cost absorption and low ability to pass-on cost pressures. This consequently took CY19 NPAT to PKR978mn (EPS: 16.87), down 60%yoy, where the company did not announce any final dividend (1H DPS of PKR15.0).

    4QCY19 Review highlights:     

    • Revenue of PKR1.4bn, down 62%yoy due to 69%yoy decline in volumes to 1,411 units compared with over 4,000units in both comparison periods.
    • Gross margins of -9.0% (gross loss of PKR130mn) came in significantly lower than our expectation of 20.7%, potentially due to (i) higher fixed costs absorbed (per unit sold) amid declining production (28% utilization rate in 4Q) (ii) the inability to transfer increased costs of steel and other inputs from vendors (high inflation, PKR devaluation, reduced income of farmers due to issues with major crops), in our view.
    • Distribution expenses increased by 13%yoy while admin expenses sharply declined by 96%yoy. 
    • Finance costs increased 41%yoy as liquidity is stuck up in government refunds, forcing the company to raise short-term debt.