LOTCHEM posted NPAT of PKR2.7bn (EPS: PKR1.79) in 3QCY22, up c.3.0x YoY and 91% QoQ. The result is in line with our expected NPAT of PKR2.6bn (EPS: PKR1.74). The management opted out of a payout this quarter against our expectation of a PKR1.0/sh.

Key highlights:

Revenues clocked in at PKR29.6bn, up 71% YoY (flat QoQ), and beating our expectation of c.PKR27.5bn. The strong YoY revenue growth is likely due to better textile demand, coupled with strong PTA-PX spreads.

The company posted a gross margin of 16.3%, which improved by 8.2ppt YoY but contracted by 1.2ppt QoQ. A slight decline in premium over international PTA prices, and higher realized cost of PX, are likely the key deviations from our estimated GM of 17.4%.

Other income came in at PKR596mn, double that of last year (+30% QoQ) owing to higher short-term investments and interest rates. Other income came in higher than our estimate of PKR476mn.

Among other line items (i) distribution expenses have clocked in at PKR49mn, up 18% QoQ owing to elevated transportation costs, and (ii) administrative expenses came in at PKR176mn, up 39% QoQ.

LOTCHEM skipped on a dividend payout out this quarter, in contrast to the large PKR4.00/sh payout in the previous quarter. The next checkpoint for LOTCHEM is its pending acquisition where we understand the three interested buyers have already submitted binding bids.

This is a decent quarterly result by LOTCHEM despite the slight retraction in GMs and flat topline movement. However, in light of the weak near term Textiles outlook, we believe that stable PTA-PX spreads and divestment at a potential premium price are the key upside triggers for the scrip. We will look to revisit our estimates upon availability of detailed accounts. Following the announcement, LOTCHEM is trading c.5% higher from its LDCP.

Courtesy –  Intermarket Securities Limited.