Avanceon Ltd (AVN) is expected to post consolidated NPAT of PKR667mn (EPS: PKR2.60) for 3QCY21, up 109% yoy and 176% qoq.

Key expectations behind the massive jump in earnings are: (i) elevated revenues amid influx of new orders, coupled with a healthy backlog of existing orders, and (ii) greater exchange gains due to PKR devaluation. Net profits in 9MCY21 will thus sum to PKR1.15bn (EPS: PKR4.49), up 55% yoy.

Key expectations for 3QCY21 results:         

Net sales are expected to rise 52% yoy and 123% qoq to PKR2.46bn, led by new orders in existing and new markets and greater realization of revenues from existing orders. Most of AVN’s orders last about 9-12 months and it realizes revenue according to percentage completion method. AVN typically realizes the bulk of the order in the last two quarters of the year.

However, we expect gross margins to increase by 1.3ppt yoy and 4.5ppt qoq to 28.9%. The yoy increase in GMs is majorly due to greater services being provided in the later stages of new orders (more planning and understanding in the initial stages of the order).

AVN is likely to post other income of PKR276mn vs. PKR229mn in 2QCY21, where the qoq increase will mainly emanate from higher exchange gains as PKR depreciated c.8% during 3Q. About 70% of the company’s revenues are exports.

Among other line items (i) finance cost is projected to rise by 10% yoy to PKR46mn, (ii) distribution expenses will be flat yoy at PKR243mn, and (iii) effective tax rate is expected to clock in at 4%, same as last year.

AVN is likely to continue the growth momentum in coming quarters, mainly led by acquisition of new orders in the Middle East (elevated international oil prices complementing AVN’s focus on GCC countries – leading to new contracts while the region ramps up infrastructural projects) along with entry into new markets (including those in Africa).

We reiterate our Buy rating on AVN with a TP of PKR232/sh.

Courtesy – Intermarket Securities Limited