Engro Polymer & Chemicals Limited (EPCL) is the sole manufacturer of PVC resin in Pakistan. Experts expect EPCL to showcase stellar earnings show in CY21 in the backdrop of a healthy demand outlook amidst several generous construction sector incentives offered by the government and margins upcycle (↑ 12% CYTD).
Our assumptions for primary margins are ~USD 840/ton and ~USD 500/ton for CY21 and CY22, respectively; whereas going forward, we expect the core delta to revert to its 5-Yr historic level of ~USD 430/ton.
Despite expectations of normalised margins going forward, we believe that the company will showcase stable financial performance in the coming years due to new projects in the pipeline. Although the company has shelved the LABSA project due to market saturation, the Hydrogen Peroxide (H202) project is still on track and is likely to come online in 2HCY22, with an expected CAPEX of USD 30-35Mn and a capacity of 28KT.
The project is expected to roughly contribute ~PKR 0.4/1.6 per share to our CY22/CY23 earnings.
Keeping everything in perspective, we maintain our liking for EPCL given its strong growth outlook and cheap CY21 P/E multiple of 4.5x.
We currently have a HOLD call on the scrip at our Jun’22 TP of PKR 67 as the stock has already outperformed the benchmark index by a whopping 32% since CYTD. However, we may witness price performance in the stock given the expectations of a surge in margins.
Courtesy – BMA Capital Management Ltd