Equity Analysis /
Pakistan

2QCY19 preview – Weak results likely to mask stabilising sales

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

    Intermarket Securities
    5 August 2019

    We expect FCEPL (formerly EFOODs) to post a 2QCY19 net loss of PKR137mn (LPS: PKR0.18), vs. 2QCY18 NPAT of PKR210mn (EPS: PKR0.27). This should take 1HCY19 net loss to PKR54mn (LPS: PKR0.07), vs. NPAT of PKR511mn (EPS: PKR0.67) in 1HCY18. While the revenue has largely stabilized in our view, we expect earnings pressure to continue this year due to weaker margins and higher distribution expenses (new product launches).

    The recovery in market share of established brands and success of recent new product launches (OLPER’s full cream milk powder, OLPER’s Pro-Cal) are expected to boost sales (up 11%yoy). We expect FCEPL to reach PKR9bn per quarter in sales, which would mark the return to CY17 levels. This is still lower than potential, in our view.

    Raw material costs are likely to remain elevated, with gross margins expected to clock in at 16.9%, (lower by 2.8ppt) vs. 19.7% in SPLY. We expect inflationary costs to be passed on in the coming months. SG&A expenses are also likely to keep earnings under pressure due to costs associated with newly launched brands. 

    FCEPL trades at bottom-of-the cycle valuations on P/S (1.1x); we have a Dec’19 TP of PKR66/sh, which offers an upside of 26%.