SEARL posted 4QFY19 NPAT of PKR469mn (EPS: PKR2.21), up 34%yoy, taking FY19 NPAT to PKR2,241mn (EPS: PKR10.55), down 17%yoy. The result is in-line with our expected FY19 EPS of PKR10.58/sh. Results were accompanied with a final cash dividend of PKR2.5/sh, lower than expected DPS of PKR3.0/sh. Note that SEARL did not pay any dividends in 9MFY19. We have a Jun’20 TP of PKR188/sh and a Buy rating
4QFY19 Key highlights
SEARL posted strong 12%yoy revenue growth to PKR4,688mn in 4QFY19. This is however, slightly lower than our projected sales revenue of c. PKR5bn for the quarter. Growth was led by a flat 15% price hike received in 3QFY19, which helped offset 13% PKR devaluation in 2HFY19.
However, gross margins came in line with expectation at 43.1%, flat yoy (vs. re-stated 4QFY18: GMs of 43.7%), due to lower than expected costs. Margins came off sequentially due to seasonality.
Focus on cost control is evident with no growth in selling and distribution expenses. That said, SEARL booked a one-off minor loss allowance of PKR13.24mn on provisions against old receivables held by its subsidiary.
Effective tax rate rose to 26% (vs. 23% in 3QFY19), in-line with expectations.
On a full-year basis, (i) SEARL posted a 12%yoy growth in revenue to PKR18,062mn, marginally lower than expectation, (ii) despite 15% price hike in 2HFY19, impact of 19% (on avg.) PKR devaluation during the year drove GMs lower, to 48% (vs. 52% in FY18). (iii) SG&A remained elevated (up 14%yoy), while (iv) finance costs doubled yoy due to higher reliance on ST borrowings.
Lower payout in FY19 indicates an interim change in dividend policy for FY20f given SEARL may require cash to fund the upcoming acquisition of OBS Pakistan. The dividend of PKR2.50 (or 25%) was likely issued to avoid 5% tax on accounting profit under Section 5A of the Income Tax Ordinance. SEARL has gained 4.8%MTD to trade at an FY20f P/E and P/S of 10.1x and 1.3x respectively. We have Jun’20 TP of PKR188/sh and a Buy rating on the name.