Engro Polymer & Chemicals Limited (EPCL) announced its 2QCY23 financial result today, where the company posted a profit after tax (PAT) of PKR 1,562mn (EPS: PKR 1.72), down by 33% YoY compared to PKR 2,338mn (EPS: PKR 2.57) during SPLY. On a QoQ basis, earnings increased by 32%. On a YoY basis, the decline in earnings is due to lower international PVC margins, higher finance costs, and gas prices. This takes 1HCY23 earnings to PKR 2,745mn (EPS: PKR 3.02). Along with the result, the company also announced a cash dividend of PKR 1.50/share taking the 1HCY23 dividend to PKR 2.50/share.

Result Highlights

· During 2QCY23, net sales witnessed a decline of 15% YoY to settle at PKR 19.0bn, amid lower PVC prices (-41% YoY).

· Gross margins of the company went down by 516bps YoY to 29% during 2QCY23 owed to higher gas prices along with depressed PVC margins (-50% YoY). However, 32% YoY PKR depreciation during 2QCY23 cushioned the decline.

· Other expenses declined by 73% YoY | 54% QoQ to PKR 352mn during 2QCY23 attributable to lower exchange losses, we view.

· Other income also decreased by 21% YoY | 25% QoQ to PKR 332mn during 2QCY23 due to a decline in investment levels, we view.

· Finance costs during 2QCY23 increased by 110% YoY to PKR 1,551mn in lieu of higher interest rates.

· Effective tax rate during 2QCY23 arrived at 54% compared to 29% during 1QCY23 due to super tax.

Recommendation:

· We have a “BUY” call on the scrip with a Jun’24 target price of PKR 51.9/share. After incorporating the 2QCY23 result, we have revised up our earnings and dividend expectation for CY23 to PKR 8.12/share and PKR 6.25/share, respectively.

Courtesy – AHL Research