Beating street estimates, LOTCHEM posted NPAT of PKR2.79bn (EPS: PKR1.84) in 2QCY22, up a sharp 189% YoY and 7% QoQ. This is against our estimate of PKR1.2bn (EPS: PKR0.81), where the major deviation stemmed from higher-than-expected PTA-PX spreads and topline growth. The company also announced a surprise healthy payout of PKR 4/sh against its normal payouts in 3Q each year.

Key highlights:

Revenues clocked in at PKR29.6bn, beating our expectation of c.PKR26.2bn, up 82% YoY and 46% QoQ. The strong revenue growth is likely due to robust textile demand, coupled with strong PTA-PX spread. To recall, Textile sector exports increased by a sharp c.25% YoY during in 2QCY22 (all-time high).

The company has posted an all-time high gross margin of 20.2%, which improved by 10.1ppt YoY and 0.5ppt QoQ.  Premium over international PTA prices and better inventory management are the key deviation versus our estimated GM of 13.5%, in our view.

Other income came in at PKR458mn, up 48% YoY and 22% QoQ owed to higher short term investments and interest rates. This is slightly lower than our estimation of PKR526mn.

Distribution and selling expenses clocked in at PKR34mn, down 11% QoQ amid slightly  reduced  transportation expense, whereas Admin expense came in relatively flat compared to the previous quarter.  . 

This is a strong result by LOTCHEM which surprised with a decent payout, despite retraction in PTA-PX spreads from its recent high of US$185/ton. In light of the present growth momentum coming from Textile sector, our near term outlook remains positive on LOTCHEM as PTA-PX spreads remain elevated. In light with current quarter result and higher-than-expected inventories, we look to revisit our estimates upon availability of quarterly accounts. The company also hit upper circuit in the pre-opening of second session today.

Courtesy –  Intermarket Securities Limited