Topline Pakistan Research has released a detailed report on Airlink Communication (AIRLINK). We are revising our earnings estimates for AIRLINK downward by 41% for FY25 and 36% for FY26, projecting earnings of Rs 8.7 per share for FY25 and Rs 13.7 per share for FY26. This adjustment accounts for lower-than-expected performance due to a decline in mobile sales and increased borrowings.
Key Findings:
– **Decline in Mobile Sales**:
According to recent data from the Pakistan Telecommunication Authority (PTA), local mobile companies produced or assembled 26.09 million units, representing an 8% year-over-year decrease in production or assembly. The decline in mobile phone sales can be attributed to several factors:
1. A high base effect from the previous year
2. An extended mobile replacement cycle due to a lack of exciting new model launches
3. Reduced consumer spending amid high inflation in recent years.
– **AIRLINK Sales**:
The company’s sales also declined, totalling Rs 85 billion, down 8% year-on-year. We now expect full-year revenue to be Rs 110 billion for FY25 and Rs 130 billion for FY26, compared to our previous forecasts of Rs 139 billion and Rs 168 billion, respectively.
– **Higher Borrowings and Finance Costs**:
AIRLINK’s working capital has been under pressure for the past two quarters due to reduced mobile phone demand. Our channel checks indicate that the company has extended its credit period from 15–20 days to 40 days amidst weaker sales, while still making timely payments to suppliers. To support its working capital needs, AIRLINK’s short-term borrowings nearly doubled to Rs 28 billion, compared to Rs 16 billion in the previous quarter. We expect these borrowings to normalise to around Rs 15 billion next year.
– **New Factory for Tax Benefits**:
AIRLINK has acquired an 8-acre plot in the Sundar Green Special Economic Zone. This acquisition includes a 10-year tax holiday and a one-time GST exemption on the import of machinery. Construction is already underway, and we anticipate production to be shifted to this new facility in the coming months.
– **Valuations**: We maintain our “BUY” rating on AIRLINK with a revised DCF-based target price (TP) of Rs 200 per share, which implies a total upside of 32% from our earlier TP of Rs 230 per share. Currently, AIRLINK is trading at FY25E and FY26F P/E multiples of 17.7x and 11.2x, respectively. At our TP of Rs 200 per share, the stock would imply a P/E of 14.6x based on FY26 earnings.
– **Key Risks**:
1. A higher-than-expected slowdown in mobile sales
2. Import restrictions preventing AIRLINK from sourcing parts
3. Greater-than-expected devaluation of the rupee against the US dollar
4. Increased competition
5. Technological advancements that AIRLINK may not be able to meet, leading to lower sales.
