Earnings review of Al-Ghazi Tractors

Al-Ghazi Tractors (AGTL) reported 4QCY20 NPAT PKR461mn (EPS: PKR7.95), compared with a net loss of PKR311mn (LPS: PKR5.37) SPLY, while up 2% qoq. This took CY20 NPAT to PKR1.4bn, up a sharp 41% yoy. The result is better than our expected 4Q EPS of PKR6.10, where the deviation largely stemmed from higher-than-expected gross margins. AGTL announced a final DPS of PKR21.39, higher than our estimate of PKR16.0. This is the only payout for the year, as the company skipped payouts earlier, potentially amid a management shakeup, in our view.

Key Result highlights for 4QCY20:

Net revenues of PKR2.8bn, broadly in line with our expectations, down 21% qoq, due to a 22% qoq decline in volumes to 2,723 units from 3,475 units.

Gross margins of 28.8% (highest since CY17) came in higher than our expectation of 23.5%, potentially due to procurement of parts at cheaper rates. Note that we had expected margins to come off qoq due to lower volumes; they have risen 4ppt in 4Q. We await the annual accounts for more clarity on this.

Distribution expenses decreased by 17% qoq amid lower volumetric sales, while admin expenses declined by a sharp 30% qoq. Other income decreased by 65% qoq, due to lower cash balances, in our view.

Finance costs were flattish qoq. This is potentially due to a slight increase in borrowings despite the decline in sales and potential delay in refunds of GST from the government. Effective tax rate clocked in at 30%.

With the overall improvement in farmer dynamics likely to be sustained on the back of recently announced Agriculture Transformation Program and the PM’s statement with regards to the importance of the sector for the economy (top priority), we believe that sales and margins will remain healthy in the coming quarters, in our view. Recall that AGTL also increased prices in January 2021 (as did MTL). We have a Buy stance on AGTL with a December 2021 TP of PKR455/sh, which is accompanied by a CY21f D/Y of c.8%.

Courtesy – Intermarket Securities Limited

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