Pakistan Chemical Sector’s expected earnings during quarter ended Dec’20

Better demand and strong primary margins are expected to drive BMA chemical universe’s profitability during quarter ended Dec’20 as we anticipate the companies to showcase an improvement of 2.0x YoY to PKR 3.6Bn. Company-wise, EPCL is expected to report earnings of PKR 2.9/sh (↑ 2.9x YoY) followed by LOTCHEM (EPS: PKR 0.5, ↓ 4% YoY), DOL (EPS: PKR 0.8, ↑ 66% YoY) and SPL (EPS: PKR 1.1 vs. LPS: PKR 0.4 in SPLY) during the quarter. We have also changed our stance on SPL from BUY to HOLD as the stock has outperformed the KSE-100 index by 9% since Dec’20.

Higher PVC margins to lift EPCL’s earnings: Engro Polymer and Chemicals Limited (EPCL) is likely to report a PAT of PKR 2.6Bn (EPS: PKR 2.9) during 4QCY20, up 1.4/2.9x QoQ/YoY. Improvement in YoY profitability is expected to be mainly driven by stable demand and massive uptick in PVC prices, which reached an all-time high of USD 1,230 in Dec’20 owing to tight global supply and strong demand outlook from downstream polyethene (PE) markets in China and Latin America. As a result, PVC margins surged by 57% YoY to USD 680/Ton during 4QCY20. Cumulatively, we are anticipating earnings for CY20E to increase by 28% YoY to PKR 4.7Bn (EPS: PKR 5.2).

Lower PTA-PX margins to keep LOTCHEM’s earnings in check: Lotte Chemical Pakistan Limited (LOTCHEM) is expected to post earnings of PKR 0.8Bn (EPS: PKR 0.5) during 4QCY20, down 16/4% QoQ/YoY. Despite stable PTA volumes, lower PTA-PX margins (USD 93/ton, ↓18% YoY) are likely to keep the profitability during 4QCY20 in check.

Consequently, we anticipate the CY20E earnings to decline by 67% YoY to PKR 1.8Bn (EPS: PKR 1.2). We are also expecting the company to announce cash dividend of PKR 0.5/sh along with the result.

Profitability to improve by 1.7x to PKR 0.8/sh for DOL: Descon Oxychem Limited (DOL) is expected to register profitability growth of 10.4/1.7x QoQ/YoY to PKR 147Mn (EPS: PKR 0.8) during 2QFY21 as opposed to PKR 88Mn (EPS: PKR 0.5) in SPLY. Better earnings estimates are likely to be on account of improving demand from textile sector and correction in H2O2 prices (Hydrogen Peroxide) to over PKR 98/kg. As a result, we believe the aggregate earnings to clock-in at PKR 161Mn (EPS: PKR 0.9) during 1HFY21E, up 13% YoY.

Earnings to settle at PKR 1.1/sh for SPL: Sitara Peroxide Limited (SPL) is likely to report a PAT of PKR 58Mn (EPS: PKR 1.1) during 2QFY21 as opposed to a loss of PKR 22Mn (LPS: PKR 0.4) in SPLY, up 15% QoQ. Recovery in H2O2 prices and higher demand from textile sector is expected to support bottom-line growth. Cumulatively, we are anticipating 1HFY21E profitability to reach PKR 109Mn (EPS: PKR 1.9) as against loss of PKR 17Mn (LPS: PKR 0.3).

Courtesy BMA Capital

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