Earnings Report /
Pakistan

Kot Addu Power Company Ltd: FY19 results: Surprise bumper dividends mask weak 4Q

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

    Intermarket Securities
    17 September 2019

    Kot Addu Power Company (KAPCO) posted 4QFY19 NPAT of PKR648mn (EPS: PKR0.74), down 84%yoy, taking FY19 NPAT to PKR13,112mn (PKR14.90) up 23%yoy. Results were accompanied with surprise final cash dividend of PKR3.0/sh, taking full year payout to PKR4.50/sh (30% payout). This is a weak result by KAPCO due to reversal charge on true-up income of PKR278mn (vs. PKR4,500mn quarterly run-rate in FY19), however, this is masked by high payouts.

    4QFY19 result highlights include:

    • Net sales remained stable at PKR29,852mn in 4QFY19 despite lower yoy dispatch levels (67% in 4QFY19 vs. 84% in SPLY), due to higher LNG prices. Consequently KAPCO operated at a load factor of 42% in F19 vs. 64% in FY18.
    • KAPCO’s gas/LNG based blocks were primarily operational (vs LSFO/HSD) leading to lower gross margins during the quarter (11.2% in 4QFY19 vs. 34.4% in 3Q).
    • KAPCO booked a PKR278mn charge on true-up income likely due to implementation of IFRS-15 (Revenue Contracts), where variable considerations are to be recorded on receipt basis and may no longer be accrued (as done historically). To recall, IPP’s were allowed to claim the difference in capacity payments for over 5% rise in the PKR parity on immediate basis. We expect reversals charges to likely offset impact of true-up income receipts in the upcoming quarters.
    • High working capital requirements kept finance costs elevated at PKR1,780mn (up 19%yoy).

    While KAPCO continues to struggle in maintaining cashflow health, surprise dividend of PKR3.0/sh reinstates confidence in the IPP’s ability to maintain nominal payouts despite a tough macro environment. Dividend payout should improve in the event of PKR200bn sukuk issuance, which is currently awaiting approval for sovereign guarantees.

    Risks: (i) Further pile up in payables; (ii) Plant shutdowns; and (iii) Lower LNG availability.